There are increasing numbers of trading trusts in Australia.
These trusts are often family discretionary trusts, with a range of
discretionary beneficiaries, and a business operating under the
corporate trustee's name. Anyone dealing with the business
would assume that it is owned by the trustee, not an undisclosed
trust. There is concern that the law concerning some aspects of
trading trusts is very unclear. Such trusts have few of the legal
protections which are afforded to companies. One eminent
commentator has described trading trusts as "jurisprudential
hermaphrodites".
The problems with trading trusts are most frequently shown when
a trading trust becomes insolvent – when its liabilities
exceed its assets. If that occurs, the law which protects insolvent
companies does not apply to insolvent trusts. In NSW, even the
Trustee Act 1925 affords little protection or
guidance.
