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ARTICLE · 11 APRIL 2019

Attacking family trusts in bankruptcy

A bankruptcy trustee has several powers and options to claim against a typical family trust or otherwise recover funds.

AustraliaInsolvency/Bankruptcy/Re-Structuring

What claims can a bankruptcy trustee make against family trusts?

During the course of bankruptcy administrations, one of the most frequently encountered asset protection structures are discretionary family trusts. It's a reasonably secure protection strategy in the event of bankruptcy because trust assets held by the bankrupt do not form part of the bankrupt's divisible assets and are not available for the benefit of creditors (section 116(2)(a) of the Bankruptcy Act 1966. And if the bankrupt was a beneficiary of the family trust, it will not make any distributions to the bankrupt as those distributions would likely become divisible assets or assessable income during the bankruptcy period.

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