Previous posts have considered the true impact of arguably the highest profile decision in relation to trusts and asset protection, being the decision in Richstar (that is - Australian Securities and Investments Commission v Carey (No 6) (2006) 153 FCR 509). The most recent post is available here - Richstar – Another Reminder
More recently the decision in Fordyce v Ryan & Anor; Fordyce v Quinn & Anor [2016] QSC 307 has again reinforced that the reasoning in Richstar, at least as it relates to the ability to attack assets held via a discretionary trust, is at best questionable.
In particular, the case confirms succinctly as follows -
'It is difficult to accept as a principle of reasoning that a beneficiary’s legal or de facto control of the trustee of a discretionary trust alters the character of the interest of the beneficiary so that it will constitute property of the bankrupt if the beneficiary becomes a bankrupt.
To the extent that Richstar might be thought to support such a principle, it has not been followed or applied subsequently and it has been criticised academically.'
As set out in previous posts, there are numerous decisions now that reached a similar conclusion.
A selection of the subsequent cases is summarised below. If you would like access to the full copies of any of the decisions mentioned in this post, please email me:
- Tibben & Tibben [2013] FamCAFC 145 - The only ‘entitlement’ of the beneficiaries under the Deed of Settlement was a right to consideration and due administration of the trust: Gartside v Inland Revenue Commissioners;
- Deputy Commissioner of Taxation v Ekelmans [2013] VSC 346 - The applicant relied on the decision in Richstar to contend that the cumulative effect of the role and entitlement of Leopold Ekelmans under the trust instruments amounted to a contingent interest in all of the assets of the trust, making those assets amenable to a freezing order as if the assets of Leopold Ekelmans. The Court found that the applicant could not in this matter rely on Richstar;
- Hja Holdings Pty Ltd and Ors & Act Revenue Office (Administrative Review) [2011] ACAT 91 – notwithstanding that beneficiaries under a ... discretionary trust have some rights, such as the right to have the trust duly and properly administered, generally a beneficiary of a discretionary trust, who is at arm's length from the trustee, only has an expectancy or a mere possibility of a distribution. This is not an equitable interest which constitutes "property" as defined;
- Donovan v Sheahan as Trustee of the Bankrupt Estate of Donovan [2013] FCA 437 - a beneficiary of a non-exhaustive discretionary trust has no assignable right to demand payment of the trust fund to them (and nor have all of the beneficiaries acting collectively) and that the essential right of the individual beneficiary of a non-exhaustive discretionary trust is to compel the due administration of the trust;
- Simmons and Anor & Simmons [2008] FamCA 1088 – the court and parties referred to Richstar on a number of occasions and confirmed that a beneficiary has nothing more than an expectancy.
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