By Stephen Mullette, a Principal of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group
Trust issues arise in insolvency on a frequent basis. Perhaps not in the ordinary sense, but rather when interested parties assert that property in the name of a bankrupt or insolvent company is in fact held on trust, for someone else, and therefore is beyond the reach of the insolvency practitioner.
A recent example in the Supreme Court of South Australia demonstrates the relevant principles which will apply to the assessment by a court of an alleged trust arrangement. In Athanasas, the Supreme Court of South Australia considered in a property purchased by parents (as to 50%) and a son (as to the remaining 50%) circumstances where the parents had provided the total purchase price, and the son had subsequently become bankrupt. The trustee in bankruptcy relied upon the registration of the property in the bankrupt’s name and sought orders for the sale of the property. The parents asserted that the property was held by their son, on trust for them, in particular since they had provided the complete purchase price, and the son had contributed nothing.
The Supreme Court of South Australia applied classic trust principles in order to decide the case:
- There could be no express trust, as this had not been put in writing in accordance with the legislation (similar legislation applies in most states);
- A resulting trust will arise in circumstances where one party provides the whole of the purchase price for property purchased in the name of another. In this case, the court would, save for one matter, presume that the parties intended that the bankrupt’s son would hold his interest in the property on a resulting trust for his parents;
- However, the presumption of advancement principle defeats the presumption of a result in trust, and arises in circumstances where parents buy property in the name of a child. In such circumstances, the parents are presumed to have intended to make a gift to their child, so that the child will take beneficial ownership of that property, rather than hold it on a resulting trust for his or her parents;
- These principles are presumptions only, and can be defeated by evidence demonstrating a different intention. However, in the present case, the evidence was consistent with the absence of any trust relationship (in particular, it having been denied by the bankrupt and its parents on a number of occasions prior to the commencement of proceedings).
In the end the Court therefore held that the property was not held on trust, and as a co-owner, the trustee in bankruptcy was entitled to an order for sale of the property.
The case is a useful illustration of the way in which the court will treat a matter in the absence of specific evidence of what the parties intended. It is a reminder to those who seek to establish trust arrangements that these need to be properly documented and that in the absence of clear evidence of the intention of the parties, the law will presume that intention regardless of what the parties actually had in mind. This can work to the advantage or disadvantage of both owners of land, providers of purchase monies, and also trustees in bankruptcy, depending upon the relevant circumstances. In order to avoid these outcomes, parties should give careful consideration to the arrangements between them at the time that property is purchased.
If you would like more information or advice in relation to insolvency, restructuring or debt recovery law, contact a Principal of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Group:
Jeffrey Brown on (02) 9806 7446 or firstname.lastname@example.org
Stephen Mullette on (02) 9806 7459 or email@example.com.