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Lost trust deed and the presumption of regularity

18 July 2018

You arrive at work early Tuesday morning grateful for the peace and quiet of your office after a morning of melodramatic tantrums by your two year old son. You’d given him 3 strawberries, turns out he only wanted 2, and the morning went downhill from there.

You check your calendar to see what appointments you have for the day and see that an old school friend, Neville, has made an appointment to see you after lunch. You haven’t seen Neville since your school days, but you fondly remember him as a smart and kind but gangly, awkward teenager with coke-bottle glasses.

Your receptionist buzzes you to let you know Neville has arrived. You ask her to take him into the meeting room and offer him a coffee.

You walk into the meeting room and your heart skips a beat. Neville’s glasses are gone, he certainly isn’t gangly and he is actually quite a looker. “Wow” you think “I hope he is single!”

Neville has come to see you about buying an investment property. He explains that he has purchased a few investment properties over the years and had another lawyer acting for him but that lawyer made a massive error that cost Neville dearly. “So,” Neville says, “I wondered who I should go to and then I remembered you were a lawyer and how nice it would be to see you again.”

His investment properties are all owned by Neville’s family trust. He tells you that he and, to your utter dismay, his wife Heidi are the trustees of the family trust.

The first thing he wants you to do, on advice from his accountant, is to remove him and Heidi as trustees and appoint a corporate trustee in their place.

“That’s easy” you say to Neville, “all we have to do to fix that is set up a new company and then appoint it as trustee and then we can transfer the existing properties to the new trustee company.”

You confirm with Neville that no tax will be payable on the change of trustee and only nominal duty of $50 will be payable on the land transfers from he and Heidi to the new company.

Neville gives you an unsigned copy of the deed for the trust so you can start the documents. “I have a signed copy somewhere, I’ll get it to you later” he says.

As he leaves the office he asks you to join him for dinner next Friday. “Of course” you say, thinking hopefully to yourself that maybe his marriage to Heidi is on the rocks, “that would be lovely!”

“Great!” says Neville “I’d love for you to meet Heidi”.

“Why are the good ones always taken?” you think despondently.

You prepare the documents to change the trustee and transfer the land, have them executed and send them to Revenue NSW for stamping.

The sting

A few weeks later, you receive a requisition from Revenue NSW requesting a copy of the original stamped trust deed.

You hadn’t spoken with Neville since having a rather awkward dinner with he, Heidi and one of Neville’s single colleagues, Fred a ‘surprise guest’ who had clearly been invited along as a blind date for you.

You phone Neville and ask him to send you the original deed. “Oh yes I forgot about that” Neville replies, “I’ll find it and send it through. And we’ll have to do dinner again, I think Fred thought you were a bit of alright.” Oh god, you think fumbling for an excuse, you didn’t think Fred was a “bit of alright”.

Neville calls the next day and tells you he has looked absolutely everywhere and he cannot find the original or a copy of the signed or stamped trust deed. “But,” you say to Neville “surely you must have had it for the investment properties you purchased recently, banks never lend money to trusts without seeing the original deed”. “There were no banks” Neville says, “they were cash purchases”.

You tell Neville it is extremely important that he exhaust all options to find the deed and, at the very least, an unsigned copy of the deed together with any evidence confirming stamp duty was paid on its creation.

You don’t hear from Neville for a couple of weeks but he finally rings and confirms he cannot find anything.

You go back to Revenue NSW and tell them this. You then get advice from them that knocks the wind out of you – Neville will have to pay stamp duty on the value of the dutiable property owned by the trust. Your heart plummets as you recall Neville’s advice that the trust owns about $10m worth of investment properties.

You quickly go into the online duties calculator and work out that stamp duty on $10m is $535,490.

You then remember a dealing you had with a commercial lawyer some time ago about a lost trust deed. She was pretty on the ball so you decide to give her a call to see if she has any solution to the problem.

You explain the problem to her. “Oh my, you poor thing” she says “let me think…….the presumption of regularity may help, but not sure, I’ll have to spend some time looking at it first.” She tells you to send her as much information as possible and she will look into it.

You are vaguely aware of the presumption of regularity, namely that it is a rebuttable presumption – all is presumed to be rightly and duly performed until the contrary is proven. In Sutherland v Woods the NSW Supreme Court considered an SMSF where there was a missing signed director resolution and missing unsigned SMSF deed. The court held that the presumption applied to infer that, as a matter of probability all the documents associated with the creation of the fund had been signed because:

  • all parties had arranged their affairs on the basis that the fund was created;
  • the member followed advice from professional advisors to utilise his company as the corporate trustee of the fund; and
  • the unsigned documents were provided with a number of other related documents which were signed.

Feeling relieved that there may be a solution, you quickly compile the information, email it to her, sit back and hope for the best….

This article is general information only and should not be relied on without obtaining further specific information.

Amanda Tully Business Lawyer / Director

Amanda Tully is a business lawyer whom acts for clients on a wide range of business succession and other commercial matters. Amanda’s experi.. Learn more about Amanda Tully

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