Presumption** of disclosure of beneficial share ownership

Recent View posts have considered a number of aspects of the ASIC requirement that the beneficial ownership of shares in a private company be disclosed.

 
One potential difficulty in relation to ASIC’s requirements in this regard involves situations where the legal owner holds the share on an undisclosed trust for another party or entity.

 
In this type of situation reading of the relevant ASIC provisions suggests that the company report should disclose the fact that the legal owner holds the share non beneficially.

 
This said, in a true undisclosed trust situation most advisers will recommend that the ASIC records in fact are completed in a way that shows the legal owner is also the beneficial owner.

 
If this approach is adopted then full supporting documentation should be retained by the legal owner to rebut the presumption created by the way in which the ASIC records are completed.

** For the trainspotters, ‘presumption’ is a key word from Midnight Oil’s song from 1998, ‘Blot’ see here:

(Stripped) Bare** trust share ownership

Recent View posts have looked at the various issues in relation to notifying the ASIC of the beneficial ownership of shareholdings in a private company.

 
One aspect of this style of situation that arises relatively regularly relates to companies that were incorporated prior to 1997. Before this date, every private company was required to have at least two shareholders.

 
In order to provide a practical solution where a person was wanting to be the sole shareholder a practice developed whereby a second party would be listed as a legal shareholder, however they would simply hold that share on a bare trust for the intended sole shareholder.

 
Where such a structure exists, assuming that the articles of association or constitution have now been updated, it is generally possible to vest (or bring to an end) the bare trust arrangement and have the ASIC records updated to simply list the sole shareholder.

** For the trainspotters, ‘stripped bare’ is a line from the U2 song from 1983 ‘October’ see hear (sic):

Updating ASIC records – Simple (Simon)**

Last week’s post touched on some of the issues in relation to disclosure of beneficial ownership of shares on ASIC records.

In situations where the beneficial ownership is incorrectly recorded there are three broad alternatives available, namely:

1. Leaving the ASIC records unchanged. From a compliance perspective while this approach is possible, it is not recommended.
2. Simply lodging an annual return or ASIC form 484 that updates the ASIC records from that date. In many cases this approach will be pragmatically appropriate and is certainly the easiest and most cost effective approach. There is a risk however that there may be adverse revenue consequences or challenges from a third party (for example a trustee in bankruptcy).
3. The final approach involves effectively rectifying ASIC records from the date the error first occurred and then arranging for the annual returns for every subsequent year to also be amended. Obviously, this approach can be a significant exercise and is generally only adopted where there are concerns from a tax, stamp duty or asset protection perspective.

** For the trainspotters, the title today is riffed from INXS’ first ever single, from 1980, watch here:

Relationships of share ownership** and the ASIC

Happy New Year!

Up until the early 2000’s, the ASIC required only very basic information in relation to the share ownership in companies.

From around 2002, the ASIC began requiring that all private companies disclose the basis on which shares were owned, in particular whether shares were owned beneficially or non beneficially.

Broadly the distinction is as follows:

1. If a share is owned beneficially this means that the legal owner listed in the ASIC records also has full beneficial ownership.
2. If a share is owned non beneficially then the legal owner holds the share subject to the terms of some form of trust arrangement (often this trust will be a standard discretionary trust).

Unfortunately the disclosure of beneficial ownership is an area of significant confusion and often the confusion does not arise until resolution of the issue is time sensitive (for example in lead up to a sale transaction or as part of an asset protection audit).

Some of the issues that arise in this regard include:

1. anecdotally, it appears that when ASIC was first imputing this data following the change of approach, many companies had their notifications reversed during the data entry process (that is shares that were owned beneficially were noted on ASIC records as being owned non beneficially);
2. similarly many companies were confused about the distinction and therefore provided incorrect notification to ASIC; and
3.  in some instances a full search of all company records was not performed (for example all aspects of the company register) so the company provided incorrect information to ASIC.

Next week’s post will consider the three main alternatives for rectification where the beneficial ownership of shares is incorrectly recorded on ASIC records.

** For the trainspotters, ‘relationships of ownership’ is a line from the Bob Dylan song from ‘Gates of Eden’ listen hear (sic):

I can see clearly now ** – how to use a deed of clarification

Previous View posts have explored the difficulties that can arise when steps are taken (for example to change a trustee of a family trust) without having reviewed the trust deed.

With another 30 June here – and Happy New Year to all those who celebrate the end of the tax year – it seemed timely to consider one ‘fix’ for trust related errors.

The particular factual matrix here was a third party financier refusing to complete a transaction until steps were taken to resolve an issue their internal legal team had identified.

In this particular instance, the only pathway we had been able to develop (and which the bank has accepted) has been to prepare a detailed 'deed of clarification'.

In many respects, this document is a self serving one, however in very general terms, it:

1. provides a summary of the purported changes;
2. confirms that the purported changes did not in fact comply with the deed;
3. restates the changes in a way that does in fact comply with the deed; and
4. has the trustee, appointor and some of the main beneficiaries of the trust all consenting to the changes, effectively with retrospective application.

The tax link – despite satisfying the financier, the document is unlikely to be binding on other 3rd parties (eg revenue authorities) unless later approved by court. ** For the trainspotters, ‘I can see clearly now’ is a song by The Hothouse Flowers from 1990.

Full names in wills – do the right thing**

Over the last few days, we have had some difficulties in progressing with the administration of an estate for a client where the deceased will did not set out his full name.

Although it sounds like a very pedantic issue, the courts are reluctant to allow wills to be granted probate unless there is complete certainty around a person’s name.

Some of the issues that need to be considered in this regard include:

1. If there is a nickname that someone uses all the time, this should ideally be mentioned in the will.
2. Ideally, the name in the will should exactly match government records (for example, on the birth certificate or marriage certificate for the will maker, and thus in turn, what the death certificate will state).
3. To the extent there is any inconsistency between government records, this should ideally be explained or clarified in the will itself.
4. If the government records do not match the will and this is known at the time of lodging probate, look to explain the inconsistencies proactively with the court when making the application.

** for the trainspotters the title of the post today is riffed from the late 1980’s and ‘Redhead Kingpin’, see:

Super death benefits and conflicts of interest: Guilt is a useless emotion**

Previous View posts have explored arguably the highest profile decision in relation to the obligation of a legal personal representative (LPR) to avoid creating a conflict of interest is the decision in MacIntosh.

The decision in Brine v Carter [2015] SASC 205 provides another example of the key issues that need to be considered by LPRs, who are also potential beneficiaries of a superannuation death benefit.

In summary, the factual scenario was as follows:

1. The deceased appointed his de facto partner and three children from an earlier relationship as his LPR.
2. The de facto made an application for the superannuation death benefits to be paid to her directly, as opposed to the estate.
3. If the superannuation proceeds had been paid to the estate, the three children would have been entitled.
4. For a period of time prior to the death benefit being paid, the de facto partner withheld details of the superannuation death benefit from the three children.
5. Importantly however, by the time the super fund trustee exercised its discretion, the three children were aware of all relevant information concerning the death benefits and had themselves made an application for the death benefits to be paid to the estate.
6. It was held that this was a critical point, that is, the other LPRs had effectively consented to the de facto making her individual claim by themselves making a claim on behalf of the estate in full knowledge of all relevant circumstances.

While the decision of the superannuation fund to pay the entitlements to the de facto ultimately was upheld, a number of key principles were explained by the court, including:

1. Where an LPR seeks payment of a death benefit to themselves personally (i.e. not to the estate), they will be in a position of conflict, unless the will expressly permits the conduct.
2. Where there is no express provision waiving conflict, an LPR should renounce their position before taking any active steps to seek personal payment of the death benefit.
3. Alternatively, the LPR can seek the consent of all other LPRs (if any).
4. In seeking the consent of the other LPRs, there is no obligation to also receive consent from each beneficiary under the will.
5. Complications will likely arise where there is a sole LPR. In that instance, if they choose not to renounce their role, there would be an obligation to receive the informed consent of each potential beneficiary.

Ultimately, the decision is yet another reminder of the importance of a holistic approach to every estate plan.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title today is riffed from New Order’s song of the same name, from 2005, listen here: