Case Background
Between 2000 and 2005, Westpoint Group in Australia profited from large-scale residential developments in core commercial districts and raised funds by establishing shell companies. However, the good times did not last. In 2006, the company’s debt rose to AUD 388 million. The company was declared insolvent, and the Federal Court appointed receivers to several group companies and their directors.
At this point, two directors—Mr. Beck and Mr. Dixon—suddenly claimed that the company’s core assets had been settled into a discretionary trust, and therefore the receivers had no authority to deal with those assets. In response, in April 2006 the Australian Securities and Investments Commission (ASIC) initiated proceedings. In Richstar Enterprises Pty Ltd v Carey (2006), the Court pierced the trust structure arranged by the two directors and held that the trust was invalid.
Why did the trust in this case fail to protect the company’s assets?
The Westpoint Case and the Three Essential Requirements of a Valid Trust: Legality, Certainty, and Independence
The effectiveness of a trust in protecting assets depends on its validity, which is grounded in three fundamental requirements: legality, certainty, and independence. The trusts created by Mr. Beck and Mr. Dixon failed on all three fronts. The Court concluded that the structure was merely a device to evade liabilities and therefore invalid.
A. Legality of Trust
Legality is a fundamental prerequisite for determining a trust’s validity.The purpose of establishing a trust must comply with legal principles and public order and good morals. In this case, the trust was set up with the explicit aim of “evading statutory debts,” which fundamentally violates this requirement. After the company’s bankruptcy, the two directors transferred core assets to the trust not for “asset inheritance” or “risk isolation,” but to shift assets and avoid liabilities. The court identified this illegal purpose during the trial, stating clearly that any attempt to use a trust to evade debts is inconsistent with the legislative intent of the trust system.
B. Certainty (Three Certainties)
A valid trust requires clarity and fixity in three aspects: the settlor’s intention to create a trust, the trust property, and the beneficiaries. In this case, Mr. Beck and Mr. Dixon (along with their wives) acted as settlors and retained the unrestricted right to remove or replace the trustees. They also served as directors of the trustee company, directly participating in the distribution of trust assets. The trustees were mere figureheads—key decisions remained subject to the settlors’ will, and there were no meeting records or decision-making bases for asset disposal or distribution. This directly violated the certainty requirement of a valid trust.
C. Independence of Trust Property
The core of a trust’s asset isolation function lies in the complete separation of trust property from the personal property of the settlor, trustee, and beneficiaries. In this case, while the trust assets were formally registered under the trust’s name, actual control remained firmly in the hands of Mr. Beck and Mr. Dixon. The disposal of trust assets and distribution of proceeds were never divorced from their de facto control. As the court emphasized in its judgment, the independence of trust property is not achieved merely on paper; it requires a genuine transfer of control rights. Treating trust property as the settlors’ personal reserve assets, as done here, naturally cannot obtain legal recognition.
Court’s Decision and Conclusion
The Federal Court ultimately held that the Westpoint trust was invalid. The Court found that Mr. Beck and Mr. Dixon never genuinely relinquished control over the assets. The trust structure was a sham designed to evade creditors. Accordingly, the trust property had to be included in the insolvency administration.
In summary, the asset-protection function of a trust cannot be achieved merely by its formal establishment. A trust created for an improper or unlawful purpose cannot obtain legal protection. When designing trust structures, professional legal advice is recommended to avoid creating an invalid arrangement and to ensure effective asset-protection planning.