VLRC calls for reform to laws on trading trusts

06 May 2015

The Victorian Law Reform Commission report Trading Trusts—Oppression Remedies was tabled in the Victorian Parliament today.

The report recommends changes to the Trustee Act 1958 (Vic), to give new rights to beneficiaries of trading trusts.

A trading trust is a popular way to structure a business, as an alternative to a company structure. Like other trusts, a trading trust has a trustee that holds property on behalf of beneficiaries. The difference is that a trading trust carries on a business. Trading trusts are used by many small family businesses as well as larger enterprises.

Problems can arise when beneficiaries want to leave the trust or change the way the trust is run, but are prevented from doing so. Unlike shareholders in companies, there is no clear way for them to obtain relief from oppressive conduct.

The Commission concluded that the law requires reform for three reasons: clarity, simplicity and fairness.

The Hon. Philip Cummins AM, Chair of the Victorian Law Reform Commission, said: “What beneficiaries can currently do in this situation is unclear, as the courts have reached different conclusions in cases. Beneficiaries are also confronted with significant practical problems in the absence of an effective oppression remedy.

“In some cases, this leads to serious unfairness. Relatively small-scale investors may purchase units with their savings and be trapped if oppression arises, given the absence of both a ready market for units and an effective remedy. The Commission’s view is that the law should treat beneficiaries and unitholders in a similar way to shareholders,” Mr Cummins said.

The report is available on the Commission’s website, www.lawreform.vic.gov.au.

Date published: 
06 May 2015

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