2. Trusts and companies in Victoria


  1. 2.1 This chapter explores the key features of trusts and companies that relate to the grant of an oppression remedy. The chapter focuses on the different types of express trusts, with an emphasis on those aspects that relate to trading trusts.
  2. 2.2 The main aim of this chapter is to provide a definition of trading trusts. The method employed throughout the chapter is comparative—by introducing the key features of express trusts and showing how these features are adapted to trading trusts.
  3. 2.3 A key theme running through the chapter is the twin distinction between commercial/traditional trusts, and commercial/trading trusts.1 It is important to note that the latter distinction arguably only reflects a difference in function, rather than a distinction between trading trusts and other forms of trust based on principle.
  4. 2.4 Although a trading trust has a trustee which holds trust property on behalf of beneficiaries in a similar way to other forms of investment trusts, the trading trust differs fundamentally in the sense that the trustee trades, that is actively carries on a business. In the Commission’s view, this functional difference between trading trusts and traditional trusts strongly suggests that the question of legislative reform to the former should not be restricted by legal principles underpinning the latter.
  5. 2.5 The chapter is structured as follows: the first section provides a description of the types of trusts covered by this reference, namely express trusts, which can be divided into two further types, discretionary and unit trusts. The second section outlines the Commission’s approach to answering the questions posed by the terms of reference. The third section outlines the Commission’s recommended definition of trading trusts and how particular aspects of the definition relate to the application of the oppression remedy.

Description of the trust

  1. 2.6 A trust has been defined as ‘an institution developed by equity and cognisable by a court of equity’.2 The essence of the institution is that a trust will exist ‘when the owner of a legal or equitable interest in property is bound by an obligation, recognised by and enforced in equity, to hold that interest for the benefit of others, or for some object or purpose permitted by law.’3
  2. 2.7 Thus, the institution of a trust contains several core elements, namely, ‘the trustee, the trust property, the beneficiary or charitable purpose, and the personal obligation annexed to property.’4 Despite these elements, there are different types of trusts:
  • express trusts created by the intention of the settlor
  • resulting trusts created by operation of law
  • constructive trusts
  • statutory trusts.

However, this report is only concerned with express trusts.

Express trusts

  1. 2.8 Express trusts are created by the will of the settlor, in the sense that the settlor intends to make a gratuitous transfer of property to the trustee.5 An express trust can arise through a will where the testator takes the place of the settlor, or inter vivos.6
  2. 2.9 Since the genesis of an express trust is the intention of the settlor, an express trust will be created by a trust deed, which defines the rights, duties and powers of the trustees and beneficiaries. It is important to note that in principle a trust deed is capable of excluding many of a trustee’s duties other than those which constitute ‘the irreducible core’7 of trusteeship.
  3. 2.10 Although the trust deed defines the primary duties owed by the trustee, a trustee will also owe fiduciary duties and other obligations in equity directly to the beneficiaries. Breach of these duties will constitute a breach of trust, perhaps making the trustee personally liable. Furthermore, express trusts are broadly divided into two categories: discretionary and fixed trusts. The latter includes unit trusts.

Discretionary trusts

  1. 2.11 A discretionary trust describes a situation where a beneficiary’s entitlement to the trust property is at the discretion of the trustee. The right of the beneficiary to trust property:

is not immediately ascertainable. Rather, the beneficiaries are selected from a nominated class by the trustee or some other person and this power may be exercisable once or from time to time.8

  1. 2.12 Family trusts are usually in the form of discretionary trusts, since the trustee is able to decide which members of the family are to receive a distribution and how much each distributee is to receive.9
  2. 2.13 A discretionary trust is generally structured for tax reasons and to minimise potential liability of the beneficiaries. Typically, the trustee will be a corporate trustee in order to take advantage of the company’s separate legal personality. The directors of the corporate trustee are usually beneficiaries. A discretionary trust also usually has an ‘appointor’ who has the power to appoint and remove trustees. In practice, therefore, the appointor controls the trust, and as a beneficiary will generally receive income from the trust.
  3. 2.14 The discretionary nature of the beneficiaries’ interest raises an important question as to whether a beneficiary has an interest in the trust property. Even where a beneficiary has no proprietary interest, a trustee will still owe duties to the beneficiary including fiduciary duties and the duty of prudent investment. Moreover, a beneficiary ‘generally has sufficient interest to approach the court to have the trust duly administered.’10

Unit trusts

  1. 2.15 A unit trust differs from a discretionary trust, as the unit trust deed provides for a fixed interest by reference to units held by the beneficiaries in the trust.11 As the name suggests, the beneficial interests are divided into units of the trust property. Bergman has defined the unit trust as a ‘trust that has been established whereby the trustee of the trust holds property on behalf of unitholders whose units provide a substantially fixed proportional entitlement or interest’.12
  2. 2.16 The trust deed of a unit trust is the primary source of rights and obligations. However, in private unit trusts the rights and obligations are sometimes located in unitholders’ agreements, often between individual unitholders, that create a layer of rights and obligations additional to those found in the unit trust deed, similar to shareholders’ agreements in proprietary companies.13 Ordinarily, the doctrine of privity would prevent a unitholder from obtaining remedies in contract from another unitholder.14 A unitholder agreement, however, can alter the relationship between the unitholders, possibly pre-empting the grant of an oppression remedy. For example, a unitholder agreement can provide that majority unitholders have a broad discretion to remove a minority unitholder, which would have implications for any finding of oppression in the trading trust context.15

Unit trusts and contract

  1. 2.17 The role of contract in the context of unit trusts beyond a formal unitholder agreement is unclear. The traditional view is that the relationship between a trustee and a beneficiary is governed by the ordinary principles of trust law and equity.16 However, it has recently been suggested that a contractual relationship can coexist with, and arise out of, the traditional fiduciary relationship of trustee and beneficiary. This is based on the reality that in contrast to a discretionary trust, unitholders will typically provide capital for a specific quantity of units.17
  2. 2.18 In their submission, Cornwall Stodart and Ari Bergman suggested that:

[B]eyond the relationship of settlor and trustee, there has been increasing support in legal academic and judicial circles for according a broader role to contract law in the context of trusts, most notably with respect to the relationship between the unitholder and the trustee, and to a lesser extent, between unitholders (in cases where there is no unitholders’ agreement). The law is undeveloped and, therefore, the rights that may arise from those potential contractual relationships are difficult to determine.18

  1. 2.19 The Institute of Legal Executives (Victoria) submitted that:

we believe the law of contract can coexist with the traditional fiduciary relationship of trustee and beneficiary where the trust is one in which unitholders provide capital for a subscription of a specific quantity of units. This is particularly so in this type of trust as in essence the parties are ‘commercial contractors’.19

  1. 2.20 Even if a formal contractual relationship is absent, contractual ideas are still relevant in the context of trading trusts.20 D’Angelo argues that the contractualisation of trust law has occurred because:

commercial parties bargaining at arm’s length, who seek the advantages and benefits of the trust form as the vehicle for their enterprise, will import contractual and contract-like devices into their documentation suite in shaping the trust framework to modify prima facie outcomes which are inconsistent with their objectives; indeed, the trust instrument has been described as the ‘third source of law’ in relation to a trust, after the general law and applicable statutes; ‘the trust instrument has primacy’.21

  1. 2.21 Notwithstanding the absence of a formal contract, contractual principles are relevant to the issues raised by this reference for two reasons. First, where commercially astute parties have bargained at arm’s length, it is arguable that the rights and obligations of the parties outlined in the trust deed and at general law should not be disturbed. Under this approach, the beneficiaries have accepted a certain legal status quo as part of the consideration for receiving an interest. As explained by D’Angelo, the benefits of the trust:

come at a price; in placing themselves outside the Act and within the legal framework that govern[s] trusts, participants forgo certain protections and expose themselves to a range of uncertainties and legal risks.22

  1. 2.22 The second issue is whether a statutory oppression remedy for trading trusts should be capable of being affected either by a unitholders’ agreement23 or through the trust deed.

Commercial trusts and the functional approach

  1. 2.23 An important foundation of the approach taken by the Commission is the idea that the trust is not a stagnant institution, but rather can be legitimately adapted to account for changing commercial expectations. This principle was highlighted by Lord Browne-Wilkinson in Target Holdings v Redferns:

In the modern world the trust has become a valuable device in commercial and financial dealings. The fundamental principles of equity apply as much to such trusts as they do to the traditional trusts in relation to which these principles were originally formulated. But in my judgment it is important, if the trust is not to be rendered commercially useless, to distinguish between the basic principles of trust law and those specialist rules developed in relation to traditional trusts which are applicable only to such trusts and the rationale of which has no application to trusts of quite a different kind.24

  1. 2.24 As explained by Michael Bryan, Lord Browne-Wilkinson was not suggesting the overhaul of the entire rationale of traditional trust law, but rather ‘by placing the commercial trust in contradistinction to its “traditional” counterpart Lord Browne-Wilkinson is developing an important functional distinction between different types of trust.’25
  2. 2.25 In contrast, Matthew Conaglen states that if it is assumed that the principles of traditional trust law apply, then:

a large part of the difficulty grappling with the Reference arises out of the fact that it raises a functional question (as to whether the courts need a power to provide a remedy to correct conduct which is oppressive as between equity owners of a business) but applies it to a doctrinal context (as to trading trusts specifically). This generates considerable difficulty in defining the trading trusts to which any such remedy should apply.26

  1. 2.26 While this argument has merit, the Commission prefers the approach implied by the reasoning of Lord Browne-Wilkinson described above. Nuncio D’Angelo has recently adopted this functional approach in the context of examining the differences in insolvency law in the treatment of trusts and companies.
  2. 2.27 In D’Angelo’s view, commercial trusts are functionally distinct from traditional trusts.27 According to D’Angelo, a commercial trust has the following distinguishing features when compared with a traditional trust. A commercial trust:


  • may be private but may also be public
  • has a remunerated corporate trustee who will accept almost no personal liability
  • raises equity funds from arm’s length investors who purchase their equitable interest, and thus acquire beneficial status, by subscription or transfer28
  • borrows and incurs other substantial debts at arm’s length
  • applies the aggregated equity and debt funds in risk-taking enterprise
  • resembles and functions much like a trading corporation
  • operates as a business entity despite not being a separate legal entity.29


  1. 2.28 According to D’Angelo, a consequence of this shift is that:

the legal framework which governs trusts has not kept up with this evolutionary shift. It is inadequate in that it does not properly accommodate the legitimate commercial expectations of those who participate in those trusts. Commerce has raced ahead of the law and left a significant regulatory gap because the law continues to view commercial trusts largely through the lens of traditional trust law, which is hostile to risk-taking behaviour, is overly protective of beneficiaries and is patently not designed to facilitate commerce…

The result is that the allocation of legal and insolvency risk among the key participants in the commercial trust is determined by rules and policies that are different from those which apply to companies and are in some cases inappropriate for modern commercial enterprise. In the absence of legislative guidance to the contrary the courts apply (and have no choice but to apply) ancient trust principles that were built on the premise of the trust as a risk-averse guardian to questions of risk allocation among arms length commercial stakeholders in a business enterprise.30

  1. 2.29 Although D’Angelo’s argument is specific to the context of insolvency, the Commission believes that the same logic is applicable to oppression remedies. In the Commission’s view, the purposes for which trading trusts are utilised are sufficiently similar to those of corporations to warrant the adoption of a functional approach.
  2. 2.30 As Sin has argued, another important difference between unit trusts and other forms of express trusts is the absence of a settlor.31 This reinforces the distinction between trusts for commercial purposes and trusts designed to reflect a gratuitous transfer of property from the settlor to the trustee.32
  3. 2.31 The importance of this distinguishing feature was highlighted in the submission by Cornwall Stodart and Ari Bergman:

…[e]ssentially, a trust is a contractual obligation between the settlor and trustees in terms of how the trustees deal with the property of the trust. The intention of the settlor is often considered by the Courts in determining how a particular trust deed is to be construed. This is frequently based on a view that, since a trust is created by the settlor with property that had previously been his, the settlor’s intentions about the operations of the trust and the conditions under which the trust property is dealt with should be determinative. In our experience, the emphasis on the settlor’s intention is largely misplaced:

  • In any event, many unit trusts are created by declaration rather than by deed of settlement: i.e., there is no settlor.
  • Most deeds of settlement are created by settlors of convenience: the settlor is a professional acting for a family friend of the appointor and the settlement sum is nominal.33
  1. 2.32 However, other submissions emphasised the importance of the settlor as a basis for conceptualising express trusts. Indeed, it was suggested that:

[i]f the fundamental organising idea at the heart of the trust is the principle of settlor autonomy, then, all else being equal, there may be reasons to take a ‘lighter touch’ approach to the regulation of trusts than corporations, including in the matter of oppression remedies.34

  1. 2.33 While this view is certainly true for many types of express trusts, it is not clear how it is to be applied to trading trusts, particularly when there is no settlor. In the Commission’s view, the absence of a settlor presents a strong case for the functional approach. A difficulty with the view that emphasises the primacy of the settlor is that it does not account for the purpose for which the trust was created.


A comparison of trading trusts and corporations

Formal differences between trusts and corporations

  1. 2.34 A fundamental difference between a trust and a company is that the latter is deemed at law to be a separate legal entity. The doctrine of separate legal personality means that:

[For] certain purposes a company is a legal entity separate from the legal persons who became associated for its formation or who are now its members and its directors. For certain purposes there is a corporate screen around the members and directors. Courts often refer to that screen as the “corporate veil”.

To say that a company is a separate legal entity means that the company can have legal rights, privileges, duties or liabilities without them being rights, privileges, duties or liabilities of its members or directors.35

  1. 2.35 The importance of the doctrine of separate legal personality is illustrated by the fact that it applies even to a proprietary company, which only has a single controlling shareholder, who is also the manager of the business.36 Importantly, the reasoning from Salomon v Salomon suggests that the doctrine applies even where the company has no substantial capital.37
  2. 2.36 A trust is conceptually different from a company. Like a company, a trust requires real people to administer the trust property and carry out the terms of the trust deed. However, unlike the company, the trust has no separate personality at law, meaning that individuals who act as trustees are personally liable in an action against the trustee.38
  3. 2.37 Moreover, the trustee will usually be a corporate trustee. This affords certain tax advantages and limited liability, which follows from the doctrine of separate legal personality. Thus, a clear demarcation between trusts and companies is somewhat artificial since in practice businesses often adopt a structure that utilises both. However, the conceptual distinction is important since there is a clear difference at law between the two entities. The problem that this reference seeks to address reflects this. Despite clear conceptual differences, Victorian case law has suggested that oppression remedies, which are shareholder remedies, can also apply to trusts. These issues will be explored further in Chapter 3.
  4. 2.38 The separate legal personality of the company means, however, that the company is the proper plaintiff in an action against the directors.39 Thus

[i]f a company sustains a loss for which it has a right of action a member as such does not have a direct right of action for the loss. Under the separate entity doctrine the company’s loss is not in law the shareholder’s loss, even though the company’s loss might reduce the value of the member’s shares.40

  1. 2.39 It follows that in a proceeding against the directors or other members of management designated with corporate authority whose conduct would have amounted to a legal wrong, the company is the proper plaintiff. However, as the directors control the company, including the ability to initiate legal proceedings, in practice it is unlikely that the company would seek redress for defective management. This means that unlike beneficiaries, shareholders have little direct recourse against management.


The nature of units and shares

  1. 2.40 As previously explained, a unit represents a beneficiary’s fixed entitlement to an equitable interest. A share, however, grants no beneficial interest in the assets of the company.41
  2. 2.41 The precise nature of a unitholder’s interest is not always clear. In theory, a beneficiary of a trust is beneficially entitled in equity to the trust property. However, the High Court has recently emphasised that the provisions of the trust deed are the starting point in considering whether a unitholder has a proprietary interest in the underlying trust property.42 The trust deed is capable of excluding a unitholder’s proprietary interest ‘in the underlying trust assets.’43 According to Tarrant there are broadly two types of unit trusts:
  • trusts where the trust fund is held by unitholders each holding a beneficial interest, or equitable interest of some type, in each individual asset
  • trusts where the unitholders have an interest in the trust fund as a whole but the trust deed specifically provides that unitholders have no interest at all in the underlying trust assets.44
  1. 2.42 The High Court recognised that proprietary interests in particular trust assets may be excluded by the terms of the trust deed.45 However, even in such a case the beneficiaries may approach the court to have the trust duly administered.46
  2. 2.43 It has been suggested that the proprietary nature of the beneficiary’s right, even if it is only a right to have the trust duly administered, is the basis upon which a beneficiary can enforce a remedy against the trustee or third parties. Indeed a trust:

is not a mere obligation. It may confer on a beneficiary the equitable ownership of a trust asset, or a partial equitable interest in the asset. Even if he has neither, a beneficiary can enforce the trust against anyone to whom a trust asset may come, except a bona fide purchaser for value without notice, so he has a proprietary right or interest in a broader sense of the term. Though some remedies sought by beneficiaries do not turn upon the existence of a proprietary interest (and certainly not a proprietary interest in the narrow sense of a transmissible interest), the proprietary nature, in the wide sense, of a beneficiary’s rights, is at the heart of the proprietary remedy which can be asserted against trustees and others into whose hands trust property can be followed or traced.47

  1. 2.44 In Wain v Drapac (Drapac),48Justice Ferguson (as she then was) accepted that it was necessary to consider whether the parties were beneficially entitled to the units, prior to considering whether the parties could obtain an oppression remedy in the form of a buyout order.49 This is clearly correct as a matter of standing. On the other hand, it is the Commission’s view that whether the beneficial interest is in the units or a more limited proprietary interest should not necessarily determine the type of relief that may be granted by way of an oppression remedy.
  2. 2.45 The possibility of exclusion through the trust deed arguably allows for the reduction of some of the differences between an interest under a unit trust and a share in a company. However, it is conventionally accepted that there is a fundamental conceptual difference between the two.50 A share:


confers upon the holder no legal or equitable interest in the assets of the company; it is a separate piece of property … But a unit under the trust deed before us confers a proprietary interest in all the property which for the time being is subject to the trust deed …51

  1. 2.46 Cornwall Stodart submitted that:

the interest of a beneficiary or a unitholder in a trust is fundamentally different in nature from a share in a company, which confers upon the holder no legal or equitable interest in the assets of the company but is a separate piece of property.52

  1. 2.47 Nevertheless, there is or may be a degree of equivalence between the interests of shareholders and unitholders, which reinforces the proposition that similar remedies, including oppression remedies, should be available to the beneficiaries of trading trusts. This proposition will be developed further in the next section.

The functional similarity between trading trusts and corporations

  1. 2.48 Despite the formal doctrinal differences between companies and trading trusts, there are functional similarities. According to D’Angelo:
  • Both forms can be used to attract and pool equity funds from a potentially infinite number of investors.
  • Both are sufficiently flexible to accommodate a low-value single-purpose venture between a small fixed group of investors with restricted transferability of interests, and a high-value multi-purpose enterprise entity among an open-ended class of investors whose interests are freely tradeable on a public securities exchange.
  • Both can be used to borrow or otherwise raise financial accommodation from arm’s length financiers.
  • Both place invested funds in the control of managers (or, in law and economics terms, ‘agents’) who may be separate from and otherwise unrelated to the economic owners. A company has a board of directors while a trust has a trustee, which may be empowered to perform similar functions.
  • In both cases, in larger enterprises those managers/agents will appoint a chief executive and a management team to exercise delegated executive functions under their oversight and supervision. In both cases, those managers/agents are vested with broad discretionary authority to take risks with the invested equity and debt capital for the purpose of generating profits on behalf of the equity investors, whose expectations for return on their investment are risk and profit based.
  • Equity investors in both enjoy the benefit of an inbuilt fiduciary regime for moderating that broad discretionary authority and controlling those managers/agents.
  • In both cases, prima facie rules within these regimes are able to be modified to reflect more closely the specific bargain between the participants, by terms in the constituent instrument and ancillary documents.
  • In both cases, equity investors’ participation will be segregated and separately identified to facilitate the distribution of profits and capital, and transferability.53
  1. 2.49 D’Angelo argued that it is these features, coupled with the inherent flexibility of the trust, which has led to trading trusts being utilised in a similar way to companies.54 As D’Angelo notes, ‘this is precisely what occurred in England with the pre-1844 unincorporated joint stock companies, and in the United States with the Massachusetts trust.’55
  2. 2.50 Sin has argued that unit trusts and companies are similar by focusing on D’Angelo’s penultimate point cited above at [2.48], in the sense that both are created through an instrument, namely, the trust deed and the company constitution. For Sin, the drafting of a unit trust deed ensures that:

a unit is a single chose in action, and therefore a kind of personal property, which is transferable and in many cases redeemable. It is a chose comprising a bundle of contractual rights as well as rights conferred by statute. In ordinary cases, the trust fund of a unit trust may be characterized as a sum of capital and a unit only confers on its owner a right in money, being a proportion of the net value of the trust fund calculated and realizable as the trust deed may provide; a unitholder has no right in individual assets.56

  1. 2.51 While the doctrinal differences between shares and units seem clear,57 in the Commission’s view this is not a sufficient reason to deny the availability of an oppression remedy. There are three reasons for this. First, it is not clear that there is a conceptual connection, other than a requirement of standing, between the nature of a beneficiary’s interest and the availability of an oppression remedy. This issue will be explored below. Secondly, the broad nature of the oppression remedy, and the way it has been interpreted, suggest that a court will examine numerous factors in determining the precise nature of the relief. The proprietary nature of a member’s interest in the trust property may be a determining factor in the grant of a buyout order,58 but this does not preclude the availability of other forms of relief. And lastly, while the differences between shares and units may need to be acknowledged for the purpose of legal analysis, the difference is unimportant from a fairness view point given that:
  • The assets of a company are managed by those who control the company; and
  • The assets of a trust are managed by the trustee or those who control the (corporate) trustee.59
  1. 2.52 Notwithstanding the formal differences between companies and trusts, the Commission has adopted a functional approach to answering the questions posed by this reference. There are two caveats to this approach however. The first is that differences between the two entities may yield a differing underlying rationale, which may affect the availability of certain remedies. The second, somewhat related to the first caveat, is that there may be an overarching policy basis for the differing treatment of trusts and companies.

Trading trusts

  1. 2.53 This section outlines the Commission’s definition of trading trusts. The definition has two aspects: first, the underlying concept, and second, the scope. As discussed previously in this chapter, a trading trust only differs from other forms of express trust in terms of its functions, rather than the inherent characteristics of the legal form.
  2. 2.54 As noted by Matthew Conaglen:

This approach, obviously, takes little cognisance of the legal form in which the business is structured – that is the point of a functional analysis. If that is the argument that is being made, then there seems to be a case for saying that the oppression remedy should be made available to all businesses, leaving the courts to develop principles as to when and how it should be applied in individual cases, taking into account the specific legal form in which the business is being run.60

  1. 2.55 During consultations and submissions, it was suggested that a difficulty with the functional approach is that it ignores the underlying rationale for ‘viewing trusts as distinct institutions serving values and aims that are different from those that underpin corporations.’61 It was also suggested that the differences between trusts and companies could generate practical challenges for the application of the oppression remedy.
  2. 2.56 In the Commission’s view, these criticisms are partly justified. However, any difficulties generated by a difference in legal form can be dealt with by a careful consideration of the available remedies. As explained by Matthew Conaglen, the emphasis upon the functional similarity between trading trusts and companies creates a strong policy basis for legislative intervention.62

The functional definition of trading trusts

  1. 2.57 In the Commission’s view, the key functional aspect of trading trusts is that the trustee trades, meaning that it carries on a business. Ford and Hardingham have suggested that:

[t]he distinction between a trading trust and other trusts is that some property held by the trustee is employed under the terms of the trust in the conduct of a business. In most trading trusts, it will be the trustee who conducts the business but in some, the terms of the trust require the trustee to stand by while a third party conducts the business using the trust property on behalf of the beneficiaries.

As a distinguishing mark, the concept of the conduct of a business may be difficult to apply in a marginal case. But it sets up a contrast between the direct employment of trust property in the commercial activity of the trustee and investment by the trustee in the commercial activity of some other entrepreneur.63

  1. 2.58 There has been a close connection historically between the development of small proprietary companies and trading trusts. Justice Lindgren has noted that:

the expression, ‘the modern trading trust’ evokes the concept of a proprietary company with a small number of shareholders or one shareholder and nominal capital. The substantial capital that forms the basis of the business is held by the company as trustee. The trust may be a discretionary trust or a unit trust, for example. Choice of the trading trust structure and of the particular kind of trust is dictated largely by tax and other commercial considerations.64

  1. 2.59 Justice Hayton has defined trading trusts extra-judicially as existing where:

under the terms of a trust, trust property held by trustees is used for the conduct of a business. In a private trust, it will normally be the trustees who carry out the trading activities but in a public trust (where the opportunity to become a beneficiary may lawfully be offered to the public) the trustees will be custodian trustees, having some extra monitoring duties imposed upon them in respect of a manager, like the manager of an authorised unit trust who will conduct the business for the benefit of the ‘investor-beneficiaries’ who will have purchased the status of a beneficiary. In a private trust, beneficiaries will normally be ‘donee-beneficiaries’ as the objects of the settlor’s bounty, although they can be investor-beneficiaries who have purchased their beneficial interests.65

  1. 2.60 Applying these functional definitions, a trading trust can either be public (in the sense that investment in the trust is open to the public) or private, and can also include discretionary trusts, unit trusts or a mixture of the two.66

The scope of the proposed amendment to the Trustee Act 1958(Vic)

Managed investment schemes, superannuation trusts and charitable trusts

  1. 2.61 Throughout consultations, there was discussion about whether the scope of the proposed amendment to the Trustee Act should extend to managed investment schemes under Chapter 5C of the Corporations Act. There was also discussion about the inclusion of superannuation trusts and charitable trusts.
  2. 2.62 At the roundtable on 11 June 2014 there was general agreement that regulated and statutory superannuation and charitable trusts should be expressly excluded from the scope of the amendment.
  3. 2.63 Ari Bergman and Cornwall Stodart submitted that:

Oppression Remedies are not considered appropriate for superannuation trusts (and in particular, self-managed superannuation funds) as those trusts may be controlled by members and are highly regulated by the Superannuation Industry (Supervision) Act 1993 (Cth).67

  1. 2.64 In the Commission’s view, it is not clear that trusts regulated by the Superannuation Industry (Supervision) Act 1993 (Cth)68 would fall within the functional definition of trading trusts. Insofar as they do, the Commission agrees with the submission that these trusts be expressly excluded from the scope of the recommended amendment. The Commission also considers that statutory superannuation schemes that are exempt from the operation of the Superannuation Industry (Supervision) Act 1993 (Cth) should also be excluded.69
  2. 2.65 In the Commission’s view, in certain instances charitable purpose trusts may fall within the functional definition of trading trusts. These trusts are fundamentally different from other forms of trust. According to the editors of Jacobs’ Law of Trusts:

The charitable trust is a form of express trust, but it is important to distinguish clearly between charitable trusts and declared private trusts because of the important principles of law relating to the former which are not applicable to the latter.70

  1. 2.66 The key difference between charitable purpose trusts and private trusts for the purpose of this reference is that the former are ‘trusts for purposes not persons.’71 Therefore, it is difficult to envisage a situation where an individual would be able to argue an oppression remedy analogously to a shareholder under the Corporations Act. Additionally, the Attorney-General has the power to appoint inspectors ‘to inquire into the management or administration’ of charitable trusts.72 Because of these differences, the Commission recommends the exclusion of charitable purpose trusts from the scope of the amendment.73
  2. 2.67 The Commission has also considered whether managed investment schemes, which are currently regulated by Chapter 5C of the Corporations Act, should be expressly excluded.
  3. 2.68 Managed investment schemes raise more complex issues, since from a functional perspective they may closely resemble private trading trusts. Matthew Conaglen suggested that:

if an incident of oppression were to occur in such a context, why should the equity owners of that business not also have available to them the sort of protection which is already available to equity owners of corporations, and potentially the equity owners of trading trusts (if such is the recommendation of the Commission). Oppression is oppression, no matter in what formal legal context it occurs.74

  1. 2.69 Cornwall Stodart and Ari Bergman also submitted that oppression remedies should be available to managed investment schemes.75 However, the Institute of Legal Executives (Victoria) submitted that managed investment schemes should be expressly excluded.76
  2. 2.70 Participants at the roundtable on 11 June 201477 generally agreed that managed investment schemes should be expressly excluded. Although it was acknowledged that it was possible from a jurisdictional perspective to amend the Trustee Act to affect the operation of managed investment schemes,78 participants at the roundtable concluded that this was undesirable from a policy point of view. The view expressed in consultations was that Chapter 5C represents a comprehensive attempt by the Commonwealth to regulate managed investment schemes. As such, there is a strong policy argument for uniformity of regulation for managed investment schemes. It is also the Commission’s view that a similar argument for exclusion can be made for trusts regulated by the Superannuation Industry (Supervision) Act 1993 (Cth).
  3. 2.71 From a practical standpoint, it is also arguable that the introduction of oppression remedies is less necessary in the context of public trusts since one of the distinguishing features of these trusts is the ability of the unitholders to redeem their units.79 As discussed in Chapter 3, the rationale of applying oppression remedies to trading trusts is often to allow unitholders to redeem their units on more favourable terms than provided for under the trust deed.
  4. 2.72 Although the terms of reference potentially include both public and private trusts, in the Commission’s view the definition of trading trust should be limited to private trusts for present purposes.

Discretionary trusts

  1. 2.73 There was less agreement throughout consultations and submissions about whether discretionary trusts should be expressly excluded from the scope of the amendment. Consultations and submissions focused on two key issues regarding discretionary trusts. First, whether discretionary trusts should be expressly excluded. And secondly, if not, whether courts should have a more limited range of remedies to relieve a beneficiary of a discretionary trust from the effects of oppressive conduct.
  2. 2.74 A family trust, which utilises a discretionary trust structure, may also fall within the functional definition of a trading trust, since as Dal Pont, Chalmers and Maxton explain ‘the main characteristic of the “trading trust” is that the trust property is used in the conduct of business.’80 A discretionary trust can clearly meet this definition when the corporate trustee actively uses the trust property for carrying on a business.
  3. 2.75 According to Ford and Hardingham, the trustee of a trading trust:

may hold the business on discretionary trust for a delineated range of objects; in other cases it may hold on fixed trust for unitholders. The former model may be appropriate where the objects are members of a particular family – for example, the original proprietor, his spouse and children. The latter model will be appropriate where the beneficiaries are more at arm’s length being, for example, former partners in the business whose original equity is now defined by reference to units held under the trust. The latter model is also appropriate where it is envisaged that, at a later time, there may be inducted into the business more “partners”.81

  1. 2.76 However, despite discretionary trusts falling within the functional definition of trading trust, some participants in consultations argued that discretionary trusts should be expressly excluded from the scope of the amendment. This proposition was broadly based on four perceived problems:

1. In a discretionary trust, a beneficiary will have no clear proprietary interest, capable of being valued.

2. Discretionary trusts are insufficiently analogous with companies, unlike unit trusts.

3. The inclusion of discretionary trusts may lead to unforeseeable remedial issues including:

a. The fact that the courts have a limited discretion to supervise discretionary trusts82

b. It may be impractical to include such trusts.

4. Even where a beneficiary holds an interest, capable of valuation, such an instance will be highly unusual, even exceptional.

  1. 2.77 However, other participants were convinced that discretionary trusts should be included. This was because omitting discretionary trusts entirely could result in many cases of oppression not being addressed. Some participants suggested that if discretionary trusts were included, there should be a limit to judicial discretion. It was suggested at the roundtable that a remedy for discretionary trusts could be limited to the conferral of a more expansive power on the court to order that the trustee provide reasons for the exercise of its discretion.83 Similarly, power could be conferred on the court to review the reasonableness of decisions made by trustees of discretionary trading trusts.
  2. 2.78 The expediency of the conferment of such court powers to discretionary trusts generally, however, is beyond the terms of reference. Moreover, the Commission considers that it would be somewhat artificial to confer such powers in relation to discretionary trading trusts as opposed to discretionary trusts more generally.
  3. 2.79 Participants also noted that that even if discretionary trusts were expressly excluded, under the Vigliaroni and Drapac line of reasoning discussed in Chapter 3, the oppression remedy under the Corporations Actwould still be available. This would create a highly undesirable situation, from a policy standpoint, of two parallel regimes dealing with trading trusts in Victoria, with differing scopes and coverage.
  4. 2.80 There was also a divergence of opinion on this issue in the written submissions made to the Commission.
  5. 2.81 Cornwall Stodart submitted that discretionary trusts should be excluded:

In our view, several difficulties confront applying Oppression Remedies to discretionary trusts, not least being that there are no individual beneficiaries, rather persons who have the right to be considered for benefit, which connotes a broad intent unstrained by notions of fairness.84

  1. 2.82 Professor Elise Bant and Associate Professor Matthew Harding cautioned against the inclusion of discretionary trusts:

It seems reasonable to assume that the core policy objective of oppression remedies is to protect the entitlements and voting power enjoyed by minority shareholders of corporations. In the case of unit trusts, where beneficiaries have entitlements (but not, we would note, voting power) it seems reasonable to pursue this policy objective to a degree. Matters are different in the case of discretionary trusts, where beneficiaries have neither entitlements nor voting power. If oppression remedies are to apply to discretionary trusts, this must be in the service of different policy objectives. In working out what these different policy objectives might be, one relevant consideration is the extent to which settlors of discretionary trusts value an institution that entails the relatively unfettered freedom of choice and action that the trustee of a discretionary trust enjoys. This question is not a legal one; it stands to be answered in light of empirical data. But if settlors of discretionary trusts do value such an institution, then fettering the discretion of the trustees of such trusts via oppression remedies might frustrate the law’s aim to facilitate settlor autonomy.85

  1. 2.83 However, the Commercial Bar Association of Victoria86 and the Institute of Legal Executives (Victoria)87 suggested that there may be a limited range of circumstances where an oppression remedy would be appropriate in the context of a discretionary trust.
  2. 2.84 The Commercial Bar Association of Victoria suggested a number of criteria in determining whether the court should order an oppression remedy. It submitted that:

An appropriate starting point would be to identify the features of the business structures in which existing remedies have been found wanting, and make any new remedy available to other entities with those features. It is suggested that the features of entities where existing remedies are inadequate are:

(a) a business conducted by a trust;

(b) participation in the management of the business by the investors;

(c) the profits of the business streamed to trusts associated with the investors/managers; and

(d) the inability of investors/managers to exit the arrangement (or exit at a fair price, or on a fair and reasonable basis) if there is a breakdown in the relationship.88

  1. 2.85 The submission goes on to point out that criterion (b) would ‘exclude most discretionary trusts from the scope of any new remedy.’89 However, the Commercial Bar Association of Victoria also submitted that an oppression remedy could be appropriate:


[a] business group may consist of one or more unit trusts and one or more discretionary trusts (and maybe even some ordinary companies as well). It may be desirable for the Court to be able to sever all business relationships between the parties when granting relief against oppressive conduct in the unit trusts.90

  1. 2.86 However, other submissions took a broader approach. Matthew Conaglen suggested that discretionary trusts should be included, since based on the functional view, the ‘oppression remedy should be made available to all businesses’.91 Furthermore, Ari Bergman argued that:

to exclude discretionary trusts from the application of Oppression Remedies would result in a significant group of oppressed trust beneficiaries lacking access to effective remedies.92

  1. 2.87 Bergman also argued that:

there are circumstances where certain beneficiaries of discretionary trusts develop economic relationships (e.g. via loan accounts) with the trust … [these] may give rise to legitimate expectations for those economic interests to be protected against oppressive conduct by the trustee. Further, there are circumstances where discretionary trusts form part of larger groups of entities in which oppression may occur, and remedying the rights of oppressed parties may require recognition of their rights as beneficiaries of discretionary trusts.93

The Commission’s view
  1. 2.88 In the Commission’s view, an oppression remedy will rarely be appropriate in the context of a discretionary trust. According to D’Angelo, discretionary trusts will generally be utilised by families ‘and/or other related parties and so the beneficiaries are not “equity investors”’94 in the same way that unitholders are with respect to a unit trust. In most instances, therefore, beneficiaries of discretionary trusts will not possess an interest capable of valuation.
  2. 2.89 Notwithstanding these matters, the Commission recommends that discretionary trusts should not be expressly excluded from the scope of the amendment. There are several practical reasons for this position. As explained above at [2.79] and supported by submissions from the Commercial Bar Association of Victoria and Ari Bergman, if discretionary trusts were expressly excluded, particular difficulties would result in seeking any recommended oppression remedy in circumstances where, for example, the beneficial interests in a unit trust are held on discretionary trust.95 It was suggested during consultations that a great many trading trusts are structured in this manner.96
  3. 2.90 The Commission also considers that to exclude discretionary trusts altogether would create additional uncertainty, due to the conflicting Vigliaroni/Drapac and Kizquari lines of authority. As discussed in Chapter 3, under the former line of authority, the presence of a discretionary trust does not necessarily preclude the availability of an oppression remedy under section 233. As explained above at [2.79], if discretionary trusts are expressly excluded from the recommended amendment to the Trustee Act, then relief may still be available under the Corporations Act where the beneficiary is also a shareholder in the corporate trustee. In the Commission’s view, this would be a backward step, due to the potential for even greater legal uncertainty.
  4. 2.91 Additional issues are raised if the corporate trustee of a discretionary trust conducts the principal business activity. Indeed some roundtable participants were concerned that the broad and flexible nature of remedies available under section 233 of the Corporations Act would be ill suited to beneficiaries of a discretionary trust. This can be seen by comparing the interest of a beneficiary of a unit trust with that of a discretionary trust.
  5. 2.92 A unitholder will usually have provided consideration for their beneficial interest in the trust. However, a beneficiary under a discretionary trust will often have provided no consideration for their beneficial interest in the trust estate. In such a case, a buyout is arguably impossible since any interest that a beneficiary has in the trust property will be at the discretion of the trustee. Another example is where a discretionary beneficiary has not actively participated in the management of the business. In that instance, probably neither an order akin to winding up97 nor a buyout remedy would be appropriate. However, these remedial issues do not demonstrate that discretionary trusts should be excluded from consideration altogether.
  6. 2.93 Some participants at the roundtable suggested that including discretionary trusts would create conceptual problems since ordinarily, the class of objects of a discretionary trust is not totally ascertainable.98 Although the beneficiary would still have an interest in the sense of being entitled to the due administration of the trust, which is proprietary in nature,99 the interest is not capable of giving rise to an oppression remedy. In the Commission’s view, however, the conceptual basis of the oppression remedy is broader.
  7. 2.94 The proprietary character of a member’s (or former member’s) interest is merely a precondition for an oppression remedy in terms of standing under section 234.
    However, the proprietary character of a member’s interest does not explain the basis of the oppression remedy. This is illustrated by the fact that section 234(a)(i) allows for an oppression remedy to be granted to a member of a company ‘in a capacity other than as a member.’ In such a case, the member’s shareholding merely serves as a gateway for relief.
  8. 2.95 However, it should be noted that although section 234 is of broad operation, its scope is not unlimited. Austin and Ramsay explain:

it cannot be every relationship of a member to a company which demands relief. The types of relationship relevant to the section probably differ according to the size and nature of the company and whether the particular relationship in the circumstances has significance independent of membership of the company. For example, a member employed by the company may be prejudiced in the capacity of employee. Whether the section is attracted would seem to depend on whether, in the circumstances, the employment relation was a way in which the member received a return for investment or whether the employment was independent of being a member. So, for example, where a small company is so organised that benefits are tied to being a director rather than a shareholder, a member-director who is unfairly prejudiced as director no longer has to resort to an application for winding up on the just and equitable ground,
s 461(1)(k), but can ask the court to make some other more suitable order under
Pt 2F.1.100

  1. 2.96 The breadth of section 234 reinforces the argument that an oppression remedy should be available to beneficiaries of a discretionary trust who have no proprietary interest in the trust property, but can show an interest in a broader sense, that is a right of due administration of the trust. Following the reasoning of cases dealing with oppression remedies under the Corporations Act, the absence of a proprietary interest in the trust property will be a relevant factor in determining whether a particular oppression remedy should be granted.101 However, the absence of such an interest should not preclude the award of such a remedy.
The scope of the available remedies
  1. 2.97 A further issue raised in consultations and submissions was the breadth of potential remedies if discretionary trusts are included in the definition. Ari Bergman submitted that:

[were] Oppression Remedies to apply to discretionary trusts, it would be appropriate for the Legislature to set out the criteria that must be met in order to invoke the Oppression Remedies.102

  1. 2.98 The Commission agrees with this submission in that the criteria for an award of an oppression remedy must be clear. However, insofar as this submission suggests that the criteria for a finding of oppression should be narrower or more limited for discretionary trusts, the Commission disagrees. The Commission’s general approach for defining oppressive conduct is considered further in Chapter 5.
  2. 2.99 Some participants at the roundtable focused on the nature of the beneficiary’s beneficial interest and the relevance of this criterion to discretionary trusts. As previously explained, this approach is difficult to reconcile with the operation of oppression remedies under the Corporations Act. From a practical standpoint, the emphasis upon a beneficiary in a discretionary trust having no beneficial interest in the trust property is difficult to justify, given the fact that it is also possible for unitholders in unit trusts to hold no proprietary interest in the underlying trust assets.103 If a proprietary interest in the trust property were a conceptual test for an oppression remedy, then it would be possible to circumvent the entire regime through the inclusion of specific provisions in the trust deed.
  3. 2.100 Moreover, it is not clear to the Commission why a statutory oppression remedy to beneficiaries of trading trusts should be limited to specific types of interests. Nor is it clear to the Commission why a beneficiary of a discretionary trust should only be able to seek a more limited oppression remedy.
  4. 2.101 In the Commission’s view, although a buyout order analogous to that available under section 233 of the Corporations Act is unlikely where a discretionary beneficiary holds no interest capable of valuation, there is a limited range of circumstances where it may be appropriate for a court to make an order terminating the trust or an order for a beneficiary or trustee to pay a beneficiary to renounce their rights under the trading trust.104
  5. 2.102 Suppose that A and B are directors and shareholders of a company which is the corporate trustee of a family trust, and jointly exercise powers of the appointor under the trust deed. The objects of the trust will ordinarily include A and B and other family members such as spouses, children and grandchildren. If the trustee only makes distributions to A and B, then it could be contended, as Justice Ipp stated, that the:

combination of powers may amount to a general power of appointment and, as such,
or in their own right, they may be a form of property or (perhaps a little less likely)
they may constitute some form of property interest in the underlying assets in the
trust fund.105


  1. 2.103 If B was a minority shareholder, and oppression was shown, then B might seek an oppression remedy against A as a shareholder and an object of the trust. Despite the presence of a discretionary trust, the structure closely resembles a small proprietary company where an oppression remedy would ordinarily be granted. Matthew Conaglen submitted that this functional equivalence ‘makes the case for an oppression remedy strongly.’106
  2. 2.104 In the Commission’s view, the above scenario may constitute an appropriate case for an order akin to winding up under section 233 of the Corporations Act, such as terminating the trust, or an order that A pay B fair value in return for renouncing any future claim
    that B may have to be considered as an object of the trust. Of course, the court may in
    the exercise of its discretion decide to do nothing more than appoint a new and independent trustee.
  3. 2.105 The Commission considers that in determining fair value, the court should take into account all the relevant circumstances of the case. In certain circumstances, it will be appropriate for a court to treat what is fair as going beyond what the beneficiary is strictly entitled to at equity. To provide complete redress for the oppressive conduct,107 the court may have to take into account other matters, such as the circumstances in which the beneficiary acquired an interest in the trust and the purpose for which the interest was conferred. Accordingly, the discretion of the court should be understood as permitting it to make a broad and inclusive assessment.
  4. 2.106 The Commission acknowledges that such scenarios may be unlikely to arise before the courts. However, in the view of the Commission, this is not an argument for the total exclusion of discretionary trusts, or for the range of remedies to be more limited than for unit trusts.
  5. 2.107 In the Commission’s view, given the above scenario, it is unlikely that beneficiaries other than A and B could obtain analogous relief, even if they were readily ascertainable. However, it is conceivable that these beneficiaries could avail themselves of other remedies. The beneficiaries would have the right ‘to compel the trustee to consider whether or not to make a distribution to him or her and a right to the proper administration of the trust.’108 Similarly to the submission of Bergman, discussed above at [2.87], this view endorses a definition of ‘interest’ or rights under a trading trust broader than a beneficial interest in the trust property. According to Lord Wilberforce:

No doubt in a certain sense a beneficiary under a discretionary trust has an ‘interest’: the nature of it may, sufficiently for the purpose, be spelt out by saying that he has a right to be considered as a potential recipient of benefit by the trustees and a right to have his interest protected by a court of equity. Certainly that is so, and when it is said that he has a right to have the trustees exercise their discretion ‘fairly’ or ‘reasonably’ or ‘properly’ that indicates clearly enough some objective consideration (not stated explicitly in declaring the discretionary trust, but latent in it) must be applied by the trustees and that the right is more than a mere spes. But that does not mean that he has interest which is capable of being taxed by reference to its extent in the trust fund’s income: it may be a right, with some degree of concreteness or solidity, one which attracts the protection of a court of equity, yet it may still lack the necessary quality of definable extent which must exist before it can be taxed.109


  1. 2.108 In the Commission’s view, this reasoning strongly makes the case for the inclusion of discretionary trusts. Where the interest of a beneficiary falls short of a proprietary interest in the trust property, then this will be a factor against an order terminating the trust or
    an order for the purchase or renunciation of a right under the trading trust. However,
    the Commission views it as inappropriate to categorically circumscribe the relief
    available to beneficiaries of a discretionary trust from an otherwise broad and flexible oppression remedy.
  2. 2.109 It was also suggested during submissions that since the beneficiaries of discretionary trusts have ‘neither entitlements nor voting power’,110 and the policy rationale of oppression remedies is the protection of both, this makes a strong case for exclusion.111
  3. 2.110 The Commission agrees that where a beneficiary of a discretionary trust has no entitlement or voting power, then this will limit the range of orders that a court can make. In the latter case, an absence of voting power would be a strong factor against an order for the termination of the trust. The interest and voting power of beneficiaries will be relevant considerations for a court determining whether to grant an oppression remedy. This is supported by the consideration that the policy basis for remedying oppressive conduct is the protection of a minority interest.112
  4. 2.111 While in most instances it is true to say that a policy basis of the oppression remedy is the protection of voting power, it is possible for a member with no voting rights to obtain an oppression remedy under Part 2F.1 of the Corporations Act.113 It follows that the absence of voting power on the part of a discretionary beneficiary is an insufficient reason to deny an oppression remedy.
  5. 2.112 The Commission considers that to expressly exclude discretionary trusts from the operation of an oppression remedy would create substantial practical difficulties. The Commission acknowledges that the inclusion of discretionary trusts is partly at odds with the way the beneficial interests in these trusts have traditionally been conceptualised. However, the Commission considers that these difficulties can be readily resolved by providing the courts with a broad and flexible range of remedies.

Unit trusts

  1. 2.113 A unit trust differs from a discretionary trust, as the unit trust deed specifies the objects and entitlements rather than leaving benefits to be determined from time to time by the trustee.114 As the name suggests, the beneficial interests are divided by reference to units. Bergman has defined the unit trust as a ‘trust that has been established whereby the trustee of the trust holds property on behalf of unitholders whose units provide a substantially fixed proportional entitlement or interest’.115
  2. 2.114 In the Commission’s view, it is easier to see how an oppression remedy could apply to a unit trust than to a discretionary trust. However, similarly to discretionary trusts, unit trusts can be structured in different ways.
  3. 2.115 The structure of a unit trust will often be determined by the role of the unitholders in the business. Usually, a unitholder will provide capital to a unit trust as an investment in exchange for units. In this case, the management of the business will be conducted by the directors of the corporate trustee rather than the unitholder. Moreover, the unitholder will not ordinarily own shares in the corporate trustee. In fact, this scenario closely resembles the division between management and shareholders.
  4. 2.116 An alternative scenario is where the parties use a unit trust to structure a joint venture. In this case, the original parties might be simultaneously directors and shareholders in the corporate trustee and unitholders. Control of the business will ordinarily be determined by the percentage of shares in the corporate trustee. As will be discussed in Chapter 3, the case law suggests that the way the unit trust is structured is highly relevant to the question of whether an oppression remedy can be granted.
  5. 2.117 The role that a unitholder wishes to have in management is dependent upon the nature of the investment. As Spavold explains:

An investor who contributes substantially all of the assets to be used in a business with which he is very familiar will want to have substantial involvement in the management of the business. In contrast involvement in management (except in extraordinary circumstances) will not be desired by an investor who only wishes to pool his funds with other persons so that the pooled fund may be efficiently and profitably invested by professional investment managers who are familiar with the financial markets.116

  1. 2.118 This is relevant in the context of the oppression remedy since, as will be shown in Chapter 3, the oppression remedy is most commonly sought in the case of small proprietary companies where the shareholders actively manage the business.
  2. 2.119 Some participants during consultations suggested that an oppression remedy should only be available to unitholders who actively participate in the management of the business. There are two implications from this argument. First, investors who are not managers in the business should not be able to seek a buyout order otherwise than on the terms of the trust deed. In practice, this would mean that usually an oppression remedy would only be available, following the Vigliaroni and Drapac line of authority, when the unitholder is also a shareholder in the corporate trustee. Secondly, these investors should not be able to avail themselves of the oppression remedy more generally.
  3. 2.120 It was suggested during consultations that a difficulty with the requirement that a unitholder also hold shares in the corporate trustee is that this will only arise in a limited range of circumstances. The majority of unit trusts involve beneficiaries investing at arm’s length from management. As is discussed in Chapter 4, ordinarily the only remedy available to a unitholder would be to seek a buyout order under the terms of the trust deed. The desirability of this situation will be explored further in Chapters 4 and 5.
  4. 2.121 Regarding the second implication referred to, the Commission considers that this would represent a narrow approach. The effect of this submission would be to give legislative force to the Vigliaroni and Drapac line of authority through an amendment to the Trustee Act. The defects of this approach will be considered further in Chapter 5.


  1. 2.122 For the reasons outlined above, the Commission has adopted a functional definition of ‘trading trusts’ that includes all trusts where ‘some property held by the trustee is employed under the terms of the trust deed in the conduct of a business,’117 including discretionary trusts. Adopting this approach, the Commission recommends that managed investment schemes, regulated and statutory superannuation trusts and charitable trusts be excluded from the scope of the proposed amendment.


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