Insolvency & Restructuring

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Focus: Winding up a trustee company as termination of the trust?

17 January 2011

In brief: The NSW Supreme Court has determined that the bringing of a winding-up application by unitholders of a trust against the trustee company cannot be characterised as a step taken to terminate or vest the trust, or to procure the distribution of the trust's capital or assets. Partner Michael Quinlan and Lawyer David Harris report.

How does it affect you?

  • This decision1 highlights the need to use clear language in drafting a trust instrument where the intention is to prevent unitholders from being able to bring a winding-up application against the trustee company.
  • A clause preventing all unitholders from taking steps to terminate the trust or procure the assets of the trust is not, in itself, sufficient to prevent a unitholder from commencing winding-up proceedings against the trustee.


This case concerned a dispute between Trust Company Ltd (TCL), the plaintiff in the main proceedings, and Valad Commercial Management Ltd, the defendant in the main proceedings. TCL and Valad each held 50 per cent of the shares in Noosa Venture 1 Pty Ltd (the trustee company), which was the trustee of the Noosa Venture Trust. TCL and Valad also each held 50 per cent of the units in the Noosa Venture Trust. The Noosa Venture Trust was established to facilitate a joint venture between TCL and Valad to acquire and redevelop the Sheraton Hotel in Noosa.

In early 2009, the Valad Property Group began to suffer financial difficulties and proposed to sell down its interests in the Noosa joint venture over time. From then on, Valad refused to progress the Noosa development, resulting in a deadlock between the directors of the trustee company (the directors were appointed equally from TCL and Valad). The unitholders' agreement between the parties provided that in the event of a deadlock, either party could offer to sell their interest in the project to the other party and that the other party must accept to purchase the interest. Valad sought to take advantage of the deadlock provisions by offering to sell its interest to TCL. TCL disputed the offer's legitimacy.

In May 2010, Ashington Capital Pty Ltd, the custodian of TCL, filed winding-up proceedings against the trustee company on the 'just and equitable' ground under section 461(1)(k) of the Corporations Act 2001 (Cth) (the May proceedings). This application was dismissed because Ashington Capital was not a shareholder in the trustee company and therefore did not have standing to bring the application. Ashington Capital was refused leave to amend the application to join TCL in the proceedings.

In June 2010, Ashington Capital and TCL jointly filed new winding-up proceedings (the June proceedings). Valad brought the present application, seeking to have the new proceedings summarily dismissed on a number of grounds.

The decision

First, Valad contended that the June proceedings should be summarily dismissed because they sought to re-agitate the May proceedings, which had already been determined. In the May proceedings, Justice Brereton stated that the winding-up claim was 'doomed to fail as the plaintiff has no standing.' Justice White held that this statement determined nothing more than Ashington Capital had no standing to bring the claim. His Honour therefore held that, since TCL was bringing the June proceedings, it was not an attempt to re-litigate the issue that Justice Brereton had previously decided.

Second, Valad contended that the June proceedings were in breach of the unitholders' agreement. A clause in this agreement barred either party, before the completion of the project or the sale of their interest in the project, from taking any steps to terminate the trust or to procure the distribution of the assets of the trust. Justice White disagreed. His Honour held that 'applying for a winding-up of the trustee is not the taking of a step to terminate or vest the trust' or to procure the distribution of the assets of the trust. Rather, the winding-up application is merely a 'step preparatory to the [unitholders'] seeking to persuade the trustee to distribute the... assets of the trust or otherwise to terminate the trust.'

Valad also contended that the winding-up application was misconceived because the winding-up of the trustee company would not be a winding-up of the trust. Justice White held that this was not a basis for summarily dismissing the application. Rather, the winding-up order would have the desirable consequence of breaking the deadlock between the parties, by placing the trustee company in the control of a third party.

Accordingly, Valad's application to have the June proceedings summarily dismissed was unsuccessful.


The most significant aspect of this case is the court's interpretation of the unitholders' agreement; in particular, the determination that the bringing of a winding-up application by the unitholders was not to be characterised as a step taken to terminate the trust or to procure the distribution of the assets of the trust. The case indicates the need for clear language where the parties' intention is to prevent unitholders from bringing a winding-up application against a trustee.

  1. Application of Valad Commercial Management Limited & Ors [2010] NSWSC 646.

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