The gap in unitholder rights

Unit trusts have certain tax advantages (and other disadvantages) compared to investment in a company. In recent years they have become particularly popular for joint real estate investments.

However, unitholders will not have the statutory rights applicable to shareholders under the Corporations Act, to seek a winding up, compulsory buyout, and other remedies, on the basis of unfairly prejudicial conduct, or because it is just and equitable.

This can leave unitholders stuck in a deadlock position, without a way out, potentially resulting in mutually assured destruction of the business.

This position was recently confirmed in the New South Wales Supreme Court case of David & Ros Carr Holdings Pty Ltd v Ritossa. Richmond J said in this case while the outcome was "unfortunate" for the plaintiff, they had received legal advice that it was important to have an exit strategy but failed to follow up on that advice.