Monday, March 1, 2010

UPEs and an Asset Protection Trap

This last week I had a timely reminder that while those tax driven issues are critical, they are in fact not as important as the underlying loan or UPE itself.

In particular, I was helping an accountant who had a client whose trading company had been served with litigation proceedings. My role was to help review all structures in the group from an asset protection perspective, although as the litigation lawyer here politely reminded us (I do not get involved in any actual court work if I can avoid it), it was probably not the most opportune time to be doing the asset protection audit - hence Friday's Twitter posting 'in times of peace - prepare for war'

In any event, while the overall structure of the group was fairly sensible, there was one, very large asset on the trading company’s balance sheet. That asset was a UPE (or if the ATO chooses to ignore industry feedback and finalises its draft ruling – a loan) owed to the trading company by a passive investment trust.

Despite bankruptcy clawback rules, there may be a solution for this client that we are currently exploring. The situation they have to address, now urgently, is of course less than ideal and was a timely reminder that all clients should be encouraged to undertake an asset protection 'audit' regularly.

For those interested, the particular solution potentially available to the client here was somewhat unique and fairly complex and I have added it to the list of ideas for presentation topics at a future Intensive or a Master Class by our firm.

Next week (or if another more relevant topic arises, within the next few weeks), I will relay one other difficulty with this client’s structure that is likely to not be able to be addressed – but could have been with some forward planning.

Matthew Burgess