As disputes within family business and trust structures become more complex, beneficiaries are increasingly turning to novel legal strategies to gain control of trust assets.
It is common to use a trust structure – involving a number of trust entities each holding different assets – as part of a family business, and to also protect and preserve intergenerational wealth.
In the event of a breakdown in relationships within the family group, a family member may seek to gain control of a trust by relying on various terms of the relevant trust deed (such as a power of appointment or a variation power), or by resorting to more typical trusts law rights and remedies (such as challenging a trustee’s exercise of its discretion over income, capital and other decisions).
However, we are now seeing other more novel means to gain control of a trust, and access the income and capital held within the trust, being pursued by beneficiaries as the pace and scope of estates and trusts-based litigation increases – perhaps in part fuelled by the $5.4 trillion intergenerational wealth transfer, the greatest in Australia’s history, already underway.
The recent case of David & Ros Carr Holdings Pty Ltd v Ritossa [2025] NSWCA 108 (Ritossa) explores two of these more novel means: statutory oppression under the Corporations Act 2001 (Cth) (Act) and the use of the court’s inherent powers as a possible mechanism to wind up a trust.
In this article, we consider the nature and limits of these potential remedies and look at how they may apply to a range of entities within a family business and wealth structure – particularly corporate trustees, corporate appointors and family offices.
Background
Trusts are frequently used in family business and succession matters. In more complex businesses, and high net worth families, it is typical for a trading trust to be established to operate the primary business, and for various other trust entities to be established to hold other personal properties and assets.
Discretionary trusts provide maximum flexibility for income and capital distributions, while unit trusts (giving rise to fixed units and shares of income and capital for unitholders) may also be considered if a business involves multiple families or external partners.
Apart from access to certain beneficial tax treatment (including CGT relief), one of the primary benefits of using a trust structure is asset protection. Isolating different business and personal assets within distinct structures can minimise exposure to third-party business creditors, and also function as a means of asset protection for individual beneficiaries. Particularly in a discretionary trust arrangement, the ability for a trustee to determine the allocation of income and capital in a given income year (with the underlying assets to otherwise remain in the trust) can be a means to shield beneficiaries from claims in the event of personal relationship breakdown, death or bankruptcy.
Under a family trust structure of this kind, it is common for a different corporate entity to act as trustee of each trust, and for a corporate appointor to be established with the power to appoint and remove the trustee in various circumstances. Particular family members will be appointed as directors and shareholders of each of these entities.
In more complex family arrangements, a dedicated “family office” corporate entity will often also be established to provide a range of services to the family on business and personal wealth matters – including investment decisions, philanthropy, intergenerational transfers, reporting, administration, governance and financial education.
However, a breakdown in family relationships can lead to a deadlock in decision-making, and give rise to protracted disputes and litigation, in which some family members may seek to control one or more trusts and secure income and capital distributions in their favour.
Aside from reliance on more “traditional” remedies – whether under the trust deed (such as invoking a power to vary the trust), or by agitating that a trustee may have breached its fiduciary obligations – Ritossa provides important clarification on the use of more novel remedies that beneficiaries have resorted to in more recent times: statutory oppression and winding up powers.
Facts
The facts giving rise to the proceedings in Ritossa were:
- In 2010, David and Rosalind Carr, and Ivan and Marina Ritossa, agreed to acquire and manage rural properties via a trust structure.
- They established the Darbalara Property Trust (Trust) and also incorporated Darbalara Holdings Pty Ltd (Company) to act as the corporate trustee of the Trust.
- The Carrs and the Ritossas were made joint directors of the Company (with Mr Carr and Mr Ritossa each owning one of the Company’s two ordinary shares) and were also allocated equal holdings of units in the Trust.
- Two properties were subsequently purchased by the Trust and were operated as farms. From 2019, disagreements arose regarding the management of the farms, and the desire to sell the Trust’s assets.
- In 2020, the Carrs commenced proceedings in the NSW Supreme Court seeking the winding up of the Trust, arguing that:
- Clause 2 of the trust deed gave the “unit holders” a “present entitlement” to the income and capital of the Trust, and a power to “require” the trustee to wind up the Trust and distribute its property or net proceeds (Deed Ground);
- The corporate trustee’s conduct was oppressive, justifying orders under section 233 of the Act (Oppression Ground); and/or
- A receiver should be appointed to wind up the Trust, in the exercise of the court’s inherent jurisdiction (Winding Up Ground).
- Each of these grounds was rejected by the primary judge, and the Carrs appealed the decision to the NSW Court of Appeal.
Court of Appeal’s decision
The appeal was dismissed on all grounds.
As to the Deed Ground, the Court of Appeal held that clause 2 should be read to require all unit holders to act collectively. It did not permit a single unitholder to call for a winding up of the Trust, and it could not be presumed the parties would have intended to create a business structure with such a degree of “fragility” that their entire commercial structure (constituted by the Trust) could be ended upon the unilateral decision of one unitholder.
In relation to the Oppression Ground, under section 233(1) of the Act, the court can make any order it considers appropriate in relation to a company, including an order that the company be wound up, regulating the conduct of the company’s affairs in the future, ordering the purchase of shares in the company or appointing a receiver over the company’s property – if one of the specified grounds in section 232 of the Act is established.
Section 232 of the Act provides:
The Court may make an order under section 233 if:
(a) the conduct of a company‘s affairs; or
(b) an actual or proposed act or omission by or on behalf of a company; or
(c) a resolution, or a proposed resolution, of members or a class of members of a company;
is either:
(d) contrary to the interests of the members as a whole; or
(e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
In an important step, the Court of Appeal clarified significant uncertainty in the previous case law as to the availability of oppression remedies under sections 232 and 233 of the Act in the context of a corporate trustee’s exercise of powers under a trust. It referred to the definition of “affairs of a body corporate” in section 53 of the Act, and held that the “conduct of a company’s affairs” in section 232(a) – where the company is a trustee company – includes matters concerned with beneficiaries’ rights (including as to payments received or to which they are entitled to under the trust deed).
However, the Court of Appeal also held that the practical availability of oppression relief for a beneficiary in relation to a trust having a corporate trustee is confined to the circumstances in section 232(e) of the Act – requiring the beneficiary to also be a shareholder of the corporate trustee, and for the trustee’s conduct to be oppressive, unfairly prejudicial or unfairly discriminatory.
In assessing whether conduct of that nature arises, the Court of Appeal held that mere deadlock or a breakdown in the relationship among directors of the corporate trustee concerning decisions of the trust is not sufficient to give rise to oppression. According to the Court of Appeal, if individuals select a particular corporate trust structure in connection with the operation of a business under which there are 50/50 shareholdings and directorships, they have to expect that it is “inevitable” that sometimes individual family members or family groups will not “get their way”. Having chosen such a business structure, the Court of Appeal said that “the parties must live with the consequences”.
As to the Winding Up Ground, the Court of Appeal also clarified and restated the nature of the court’s inherent equitable jurisdiction over trusts. It rejected the Carrs’ attempt to draw an analogy with the court’s statutory power under section 461(1)(k) of the Act to wind up a company on just and equitable grounds where there has been a breakdown in mutual trust and confidence. In seeking to wind up a trust, there is no “general equitable power” to terminate a trust relationship or appoint a receiver to realise trust assets and make final distributions to beneficiaries on the basis of a purported breakdown in mutual trust and confidence said to jeopardise the trust property.
Takeaways
Ritossa provides important clarification on the intersection between corporate law and trusts law. Where the trust has a corporate trustee – as is typically the case in a family business and private wealth scenario – it is possible for a beneficiary that is also a shareholder of the trustee to argue that the trustee’s conduct is oppressive, unfairly prejudicial or unfairly discriminatory to the beneficiary.
However, this ground will not be made solely on the basis of a deadlock between the directors or the trustee. “Something more” will be required – the example given by the Court of Appeal in Ritossa was a corporate trustee “out of spite” intentionally excluding a beneficiary from income or capital distributions in a given financial year despite a record of making distributions to all beneficiaries for a number of prior years, and in circumstances where the trust was left with the burden of paying tax at the top marginal rate for income derived in that financial year.
Further, there is no inherent power for a court to terminate a trust on the basis of an alleged breakdown in the relationship among directors or shareholders of the trustee, and the court will not entertain an attempt to wind up the trust through the “back door” by drawing an analogy with remedies under the Act to wind up a corporate entity.
However, it is important to appreciate the context of the Court of Appeal’s decision in Ritossa. The applicants in the matter only sought orders winding up the trust. They did not seek to have the corporate trustee itself wound up.
In the event of conflict among family members in a family business or succession matter, it would remain open to a family member who is a shareholder of the corporate trustee, or a corporate appointor or family office entity, to seek a remedy on the basis of oppression, or to seek a winding up of the corporate entity on just and equitable grounds under the Act in appropriate circumstances.
In each case, that crucial “something more” than mere deadlock would be required – pointing towards conscious and intentional damage to the interests of a shareholder beneficiary.
Get in touch
At Hamilton Locke Private, we have a dedicated team of experts that are highly experienced in all trusts, estates and succession planning matters, including complex estates litigation and disputes.
Please get in touch with us if you would like us to talk through your options in designing an optimal family business structure or family succession plan, or if you would like to explore your rights and remedies in the event of a dispute involving your existing family business or wealth structure.
If you would like to discuss any of these issues in further detail, please get in touch with Brett Heading, Fran Becker, Jamie Blair, Jack Conway or Penelope Nicholls.
