Many trusts and superfunds use a company as their trustee, but does the trust relationship continue if the trustee company is deregistered?
Sometimes the corporate trustee can be deregistered by ASIC for failure to pay the annual review fee.
You can also apply to ASIC to deregister a company in certain circumstances where the company has minimal assets and liabilities, and all of the shareholders agree to deregister the company. This is a simple one-page application, however sometimes errors occur, and the wrong company may be deregistered, or a trustee company may be deregistered without considering the trust relationship.
When a company is deregistered, under S.601AD (1) of the Corporations Act, the company ceases to exist and under subsection (1A) all assets that the company held before deregistration vest in the Government. This includes all assets that the company held on trust (i.e. if acting as a trustee).
So, if the trustee company’s life comes to an end upon deregistration, does the trust’s life also come to an end? Apparently not. There is a fundamental principal of equity that states “a trust will not fail for want of a trustee”.
In these circumstances ASIC could become the trustee. However, in reality, the trust will be in limbo as ASIC is very unlikely to want to get involved in the administration of the trust.
So, what options do you have to fix this problem?
- Apply to ASIC to reinstate the deregistered company;
- The Appointer of the trust could appoint a new trustee (depending on the trust deed);
- Apply to the Supreme Court for the appointment of a new trustee; and,
- Apply to ASIC to transfer the assets to the beneficiaries of the trust.
Whilst it can be very easy to deregister a company, it can be very difficult to reverse or correct a deregistration. Care needs to be taken to ensure a company holds no assets before it is deregistered.
If you have any concerns in relation to your trustee company, please don’t hesitate to contact your client manager at KSW.
Author – Zane Grigg
*Correct as of 16 December 2021
*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this article, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under professional standards legislation.