Unit Trusts have become a popular corporate structure in Australia, often replacing a traditional company structure, due to benefits relating to tax and asset protection. The structure is now commonplace for operating (trading) businesses, not just one-off projects (such as property developments). However, questions remain over whether the flexibility provided by a Unit Trust structure may come at the cost of reduced protection for unit holders in the minority when compared with the available remedies of minority shareholders in a company.
The question to ask is whether, when a Unit Trust is used to effectively perform the same operation as a company, should a unit holder have the same rights afforded to members of a company in the event of oppression? In particular, in fact situations that could give rise to a claim of oppression under ss 232 and 233 of the Corporations Act 2001 (Cth) (Corps Act), can a minority unit holder in a unit trust bring a comparable action against the Trustee company? This question has been considered by superior courts across Australia, as well as by both the Victorian Law Reform Commission and NSW Law Reform Commission.
NSW Courts have largely followed the principles outlined in the decision of Kizquari that s 232 of the Corps Act is not applicable in relation to oppression within a trust. Conversely, Victorian Courts have followed the principles outlined in the decision of Vigliaroni, with a focus on an expansive interpretation of the “affairs” of a company under s 53 of the Corps Act to include a company’s conduct as trustee of a trust, thus allowing minority unit holders to access the remedies for oppression under the Corps Act where the affairs of the company are significantly linked to the trust.
The respective law reform bodies produced contrary recommendations, with NSW recommending that ‘Oppression remedies available to shareholders under company law should not be extended to beneficiaries of trading or other trusts under the law of trusts’. This conclusion was reached due to a number of factors, including:
The divergent positions between NSW and Victoria illustrates the complexity of this issue, which is yet to be definitively resolved.
Fundamental differences between a company and a unit trust as a structure have a material impact on whether remedies for oppression under the Corps Act are available or appropriate, or whether the equitable remedies for breach of trust or breach of fiduciary duty are available or adequate, for dealing with ‘oppression’ of a minority share or unit holder (as the case requires).
In a Unit Trust, unit holders have a fixed interest in the property held by the trust. In this regard, the interest of a unit holder is similar to that of a member of a company holding shares in a company. However, there are two fundamental differences:
These fundamental differences have been highlighted in favour of the current position in NSW, which does not allow unit holders to access the remedies for oppression under the Corps Act. Contrary arguments arise when the unit trust is effectively performing the role of a company – thus confusing the position of the rights and remedies available to parties under the trust arrangement.
One issue that arises in analysing whether the oppression remedy, under ss 232 and 233 of the Corps Act, should be available to unit holder in the minority under a unit trust, is whether legislative amendment is appropriate given the limited circumstances in which any remedy for ‘oppression’ would apply. For example, it is argued a remedy for oppression would not extend to beneficiaries under a discretionary trust, where the trustee decides how to distribute the capital held by the trust. The remedies would likely only be applicable to minority unit holders in a unit trust, being just one type of trust. Further, where the terms of the unit holders deed allow for prescribed conduct in relation to the activities of the trust (such as exit), there is concern that if the oppression remedy were available, ‘it would permit a disgruntled beneficiary of a trust to evade or bypass the terms of the trust deed’.
The practical point is that accountants and lawyers who recommend a unit trust structure need to explain distinction between the trust and company structure and their clients must consider all material differences before a decision regarding suitable structure is made. Similarly, until the uncertainty is resolved, either through legislative amendment or judgment of an Appellate Court, lawyers and accountants must identify the risks associated with oppression and the possibility of complex argument should it arise.
Parties should carefully consider the appropriate corporate structure for the needs of the proposed business venture and the different remedy position in the event of oppression (in a company and in a unit trust structure context) before embarking on the venture.
It is prudent for unit holders to be aware if there are provisions in a Trust Deed or Unit Holders Agreement relating to the process of disposal of units by minority unit holders. Unit holders should also be aware of the available equitable remedies under trust law.
Parties should be aware that despite circumstances where a unit trust is used in place of, and effectively performs the role of, a company, the current NSW position is that it is likely that the oppression remedies under the Corps Act will not be available.
The team at SWS Lawyers are highly experienced in dealing with a range of matters relating to Trusts in a corporate structure setting, as well as advising on rights and entitlements under various business models. If you need advice in relation to any of the contents of this article, please get in touch with us on (02) 4040 9640.
 Kizquari Pty Limited v Prestoo Pty Limited (1993) 10 ACSR 606, 612.
 Vigliaroni v CPS Investment (2009) 74 ACSR 282, .
 NSWLRC, Laws Relating To Beneficiaries Of Trusts, Report No 144 (2018), Recommendation 3.1.
 Ibid, [3.26].
 Ibid, [3.21].
 Ibid, [3.27].
 ‘An Oppression Remedy for Beneficiaries of a Trust?’, Christopher Birch S.C, paper delivered at the Law Society of New South Wales Specialist Accreditation Conference, 10 August 2018, page 3. See also Arhanghelschi v Ussher  VSC 253 -.