Tuesday, October 25, 2016

Richstar – Another Reminder

Earlier posts have looked at various aspects of the leading trust case of Richstar – see -

Impact of Richstar on discretionary trusts

Scope of the Richstar decision

As set out in earlier posts, and with thanks to the Television Education Network, today’s post considers some related practical issues in relation to this case in a ‘vidcast’ at the following link - https://youtu.be/pk9xWWtLPgE

As usual, an edited transcript of the presentation for those that cannot (or choose not) to view it is below –

The Richstar case is out of Western Australia from 2006.

It was a decision that appeared to potentially open up the floodgates in terms of how trusts would be considered from a bankruptcy perspective, and potentially see the assets inside a trust would be treated in the same way as they are under the family law regime and therefore, potentially be exposed on bankruptcy.

The Richstar decision was driven by an ASIC court case, effectively seeking a freezing order across all of the assets of the trust.

The argument being that there was such a high level of control available to the person that had gone bankrupt because they were the appointor or principal of the trust, they owned all the shares in the trustee company, they were director of the trustee company and they historically received distributions to themselves personally. The combination of all these things was enough for the court to hold that the trust was just a shell.

In other words the court held the trust was actually just a brilliant disguise for what was actually going on.

There's been at least another three or four cases after Richstar that say the conclusion in Richstar is not good law. That is – the court can't take the family law principles and put them into the Bankruptcy Act. They're completely different regimes and it's not appropriate.

So what is the reason we're still speaking about Richstar when it was a decision of a sole judge in Western Australia in 2006?

The reason is that the sole judge is now the Chief Justice of the High Court. Therefore as much as there are a number of the cases, particularly in New South Wales, that say Richstar is bad law and something to ignore, there's still that heritage or residual issue that the Chief Justice of the High Court made that decision. There is thus a risk that the courts might revisit that in another context at some point in the future.