Friedman39s liquidating trust


19-Jun-2020 10:14

Key powers under a trust deed can include: Commonly a trust deed automatically disqualifies a corporate trustee from acting as the trustee upon the insolvency of the trustee.The result usually means that the insolvent continues to act as a ‘bare trustee’ or a replacement trustee is appointed to continue to administer the trust’s affairs.This equitable lien over the trust’s assets allows the liquidator to indemnify itself for any liabilities incurred by the insolvent on behalf of the trust assets.When the insolvent is wound up, the liquidator must determine and then seek out this right of indemnity from the trust’s assets.To better understand the impact of an insolvent on trust assets, we explore the following: Background A trust is a legal relationship whereby property is held by one party for the benefit of another.

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A liquidator often looks to its powers under section 477(2)(c) of the Corporations Act 2001 and/or directions from the court for guidance.Section 477(2) of the Corporations Act sets out the powers upon which a liquidator can act in this role.Sub-section C relates specifically to the power of sale for a liquidator.However, it is important for advisers to understand when establishing a trust for clients how these rights may impact trust assets.

As stated earlier, a trustee usually has a right to indemnify itself for costs and expenses in administering the trust and/or dealing with the trust assets for the beneficiaries’ benefit.This right continues upon the corporate trustee’s insolvency.



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