Submission update: Clarifying the treatment of trusts under insolvency law


Further to our article of 15 October regarding the Government's release of a consultation paper on the treatment of trusts under insolvency law, ARITA has now lodged a comprehensive submission.
The submission highlighted the following key points:
  • Feedback from our members obtained via the survey clearly shows that reform to legislation for trading trusts in insolvency administrations is needed.
  • Having the power to deal with trust assets and make distributions to creditors without court involvement and having to be appointed as receiver, would be of substantial benefit to most external administrations involving trusts. An insolvency practitioner should have all the powers given to them in relation to companies when dealing with trust assets and liabilities, unconstrained by limitations in the trust instrument or the fact that the trustee otherwise has less than plenary powers (eg if it has been ejected and has become a bare trustee). 
  • ARITA broadly supports the recommendations from the Harmer Report in 1988.
  • When a trustee is placed into external administration, all trusts automatically are as well and the external administration would manage the external administration of the trustee and each trust on a separate basis, like a corporate group.
  • There should be a definition of "insolvent trust" even though a trust is not a legal entity.
  • There needs to be a publicly available and searchable register of trading trusts.
  • There needs to be a legislated priority for the fees and expenses of the external administrator.
  • The Bankruptcy Act should be amended to mirror the changes to the Corporations Act.
Thank you to the members who participated in the online round table discussion and those who took the time to complete the survey and provide us with practical example of issues with trusts in their external administrations.  All of this assisted us in developing our submission. 

Read a copy of the ARITA submission.

Read a copy of the Consultation paper.

Read the ARITA article of 15 October 2021.