Commercial trusts

Cover Page
Full Title
Dedication
Copyright
Foreword
Publisher’s Note
Preface
Table of Cases
Table of Statutes
List of Abbreviations
Table of Contents
	Chapter 1 Introduction: Concepts and Principles
		The objectives of this book
		A summary of the central argument
		The core hypothesis: from guardian to entrepreneur
		A practitioner focus
		The ‘commercial trust’: definition, elements and essential anatomy
		Dramatis personae: the three principal actors
			The beneficiary as ‘equity investor’
			The corporate trustee
			The commercial creditor
			Directors of the corporate trustee
		Other key terms and concepts
			Commercial expectations
			‘Contractualisation’
			Company vs corporation
		Comparisons with the United States: why?
		Law and economics theory
			Enterprise theory
			Contractarian theory
		England and elsewhere
		Trusts and taxes
		Other exclusions from scope
	Chapter 2 Evolution of the Australian Commercial Trust
		Introduction
		The historical narrative
		The trust as a creature of conscience and not of commerce
			The first element: the trust as a device for circumvention
			The second element: the trust as a property concept and the trustee as ‘guardian’
			The third element: the personal nature of the trustee’s role as guardian
			The fourth element: flexibility
		The trust becomes a business entity
			The trust as progenitor of the limited liability company
			The end of history for the commercial trust in England
		Separation of the trust and the company: consequences for trust law
		The two manifestations of the Australian commercial trust
			The public unit trust/managed investment scheme
			The Australian trading trust
		The advantages of the commercial trust over the company
			Ease (and privacy) of establishment
			Flexibility in structuring the fiduciary framework and beneficial entitlements
			Public reporting
			Distributions to equity investors — profits
			Distributions to equity investors — returns of capital
			Redemption of invested equity
			Management, governance and decision-making
			Solvent winding up
			Advantages for trustees
		The phenomenon of ‘contractualisation’
			Trust and contract: ‘no necessary antipathy’
			The trustee-beneficiary relationship: ‘the flexible interplay of law and equity’
		The parity myth and how it is encouraged
			Functional similarities between the company and the commercial trust
			The trust mimics the company: the role of promoters and advisers
			Blurring the distinction: the role of legislators and regulators
		Separate legal frameworks: regulatory dissonance and the question of efficiency
		Conclusion
	Chapter 3 Legal Risks of the Beneficiary as an Equity Investor
		Introduction
		Commercial expectations of the equity investor beneficiary
		The risk: unlimited personal liability for enterprise debts
		The issues: difficult questions with difficult answers for investors
		The prima facie rule: the trust veil and an ‘ill-defined species of limited liability’
		Direct liability: the hybrid trust-agency and trust-partnership
			The implication of agency
			The ‘control test’
			Lifting the trust veil
		Indirect liability: the trustee’s personal indemnity
			In what circumstances will the personal indemnity arise?
		Can a creditor subrogate to the personal indemnity?
			Can the risk of unlimited liability be eliminated through private means?
			A contractualised solution for indirect liability: excluding the personal indemnity
			A contractualised solution for direct liability
			Undermining the protection
		Eliminating the risk by statutory intervention: the United States and elsewhere
			The United States
			Canada
			Singapore
		Application to the Blackacre Trust hypothetical
		Conclusion
	Chapter 4 Legal Risks of the Commercial Trustee
		Introduction
		The commercial expectations of the corporate trustee
			Facing equity investors
			Facing creditors and other external parties
		The source of the issue: the personal and proprietary elements of the trust
		Facing beneficiaries: power and its proper exercise
			What is a ‘breach of trust’?
			Power
			‘Plenary powers’ or ‘universal powers’ clauses
			Acting ‘properly’: the fiduciary burden and its attenuation
			Relief from conflicts
			Exculpation and the ‘irreducible core’
			Gross negligence
		Facing beneficiaries: contractualising the trustee’s right to remuneration
		Facing external parties: personal liability and the proprietary indemnity
			Excluding the proprietary indemnity
			The elements of the proprietary indemnity
			‘Impairment’ of the proprietary indemnity
			Condition 1: liabilities properly incurred and the concept of ‘related breaches’
			Condition 2: the clear accounts rule and the concept of ‘unrelated breaches’
			Relevance of the trustee’s intentions and motivations in relation to breaches
			Effect of breaches of trust on the proprietary indemnity: ‘impairment’
			Contractualising the relationship with beneficiaries: a summary
		Facing external parties: limiting personal liability
			The parties’ commercial expectations and objectives
			The legal effect of limitation clauses
			Market experience
			Limitation clauses are an imperfect solution for the trustee
			Limitation clauses are an imperfect solution for the unsecured trust creditor
		A model limitation of liability clause
			Clause X.1
			Clause X.2(a)
			Optional insert regarding beneficiaries’ personal indemnity
			Clause X.2(b)
			Clause X.2(b)(i) and (vi)
			Clause X.2(b)(ii)
			Set-off
			Clause X.2(b)(iii)
			Receivership
			Clauses X.2(b)(ii), (iv) and (v)
			Clause X.3
			Clause X.3(a)
			Clause X.3(b)
			Clause X.4
		The position of the trustee under United States trust law
		Why a limitation on recourse via the indemnity rather than an outright exclusion?
			Watling v Lewis and ‘repugnancy’
			The impact on Australian trustee liability limitation clauses
		Conclusion
	Chapter 5 Legal Risks of the Trust Creditor
		Introduction
		What is a ‘trust debt’ and who is a ‘trust creditor’?
		The commercial expectations of the trust creditor
			Secured trust creditors
			Unsecured trust creditors
		No statutory indoor management protections
		Subrogation: the unsecured creditor’s indirect (and only) route to trust assets
			The ‘double equity risk’
		Analysis of the Blackacre Trust hypothetical
			The asymmetry of the trustee’s indemnity
			Asymmetry resulting from the separation of ownership
			The interplay of law and equity
			The unrelated breach problem and the clear accounts rule
			The effect of the clear accounts rule on the exoneration power
			Evolutionary mismatch and the ‘lag effect’
		‘Related breaches’: creditor protection by private means
			Due diligence
			Contractual protections
			Legal opinions and commercial trusts
			The quality of protection these steps provide: a summary
		‘Related breaches’: the American solution
		‘Unrelated breaches’: creditor protection by private means
		‘Unrelated breaches’: the American solution
		The United States doctrine of direct access to the trust estate
			The evolution as observed by scholars and commentators
			The journey through the courts
			Current United States position, according to the Restatement
			Could these principles be adopted in Australia?
			A direct access theory for Australia: severing the nexus with the clear accounts rule
			The reimbursement limb distinguished from the exoneration limb
			The true nature of the exoneration limb: a power to apply assets for the benefit of creditors
			Severing the nexus: the ‘modified subrogation theory’
			Severing the nexus: the ‘independent power to apply theory’
			Suing the trustee in its representative capacity
		Conclusion
	Chapter 6 The Commercial Trust in Insolvency
		Introduction
		The historical context and background
		The many issues attending commercial trusts affected by insolvency
		The commercial trust and insolvency law: an awkward relationship
		What is ‘insolvency’ when it comes to trustees?
		The ‘insolvent trust’: legal nonsense vs commercial reality
		The ‘insolvent trust’: a proposed definition
		The four possible scenarios
		Elements of the analysis
			The solvency of the trustee in its own right
			The solvency of the trust fund
			The trustee’s proprietary indemnity
			Limitation of the trustee’s personal liability
		The sequence of investigation
		Indicators of insolvency of a commercial trust
		Insolvent commercial trusts and the United States Bankruptcy Code
		Conclusion
	Chapter 7 Conclusion: Reforming the Commercial Trust
		From guardian to entrepreneur and beyond: reforming the commercial trust
		The road ahead: options
		Statutory remediation
			Definitional and structural matters
			Protection of all participants
			Protection of equity investors
			Protection of creditors and other external parties
			Protection of trustees
			Standard (default) trust terms
			Dedicated insolvency regime
		Reform through the courts: ‘equity is not beyond the age of child bearing’
		How influential could United States trust law be?
		Closing: relocating the commercial trust to its proper place
	Appendixes
		Appendix 1 Extracts from the Corporations Act
			Part 1: ‘Managed investment scheme’
			Part 2: Innocent outsider protections for those dealing with a company
		Appendix 2 Selected Reports into the Law Affecting Commercial Trusts
		Appendix 3 Protecting Equity Investors
			Part 1: Excluding unit holders’ personal indemnity to trustee
			Part 2: Excluding unit holders’ personal liability to external parties
		Appendix 4 Protecting the Trustee
			Part 1: The plenary or universal powers clause
			Part 2: Clauses attenuating the fiduciary burden
			Part 3: Remuneration of trustee clause
			Part 4: Trustee limitation of liability clauses
		Appendix 5 Protecting Creditors and Other Counterparties
			Part 1: Due diligence checklist for dealing with the trustee of a commercial trust
			Part 2: Contractual protections
			Part 3: Legal opinions
			Part 4: Creditor protection against unrelated breaches
		Appendix 6 The Blackacre Trust Hypothetical
	Bibliography
Index