Timely Government Review of NSW Trust Law
The NSW Attorney General recently announced that the NSW Law Reform Commission (Commission) will be reviewing certain aspects of the law of trusts in NSW. The Commission will consider whether laws should be introduced to:
- limit the liability of beneficiaries to indemnify trustees or creditors of a trust, if the trustees fail to meet the obligations of the trust;
- limit the liability of investors in unit trusts to amounts unpaid on their units, in the same way that the liability of investors in shares is limited to amounts unpaid on their shares;
- enable beneficiaries of trading trusts to have oppression remedies available to them in the same way that shareholders have oppression remedies under the Corporations Act.
The review will address uncertainties and inconsistencies in trust law that have persisted for some time in NSW and other jurisdictions. The review will necessarily consider policy issues such as:
- whether it is appropriate for the liability of beneficiaries to be limited at a statutory level, or whether it should be negotiated at a trust deed level;
- why investors in units of a unit trust are treated differently to investors of shares of a company.
Trading trusts are becoming increasingly common both as private and public investment vehicles. Laws concerning their use have not developed at the same speed.
Changes to these areas of law may increase investor confidence in the use of trading trusts, and lead to further innovations in how they can be used as investment vehicles.
As noted in the terms of reference given to the Commission, any increase in protection for the beneficiaries of trusts will need to be balanced with the need to ensure the responsibilities of insolvent trading are not diminished.
The Commission is due to complete their report by 30 April 2018.