Corporate Trustee Companies

One type of problem I often encounter in practice are disputes between shareholders in corporate structures. These problems are usually exacerbated when there are other complicating elements, such as subsidiary companies or associated trusts.

It seems that more often than not, the shares in trustee companies does not reflect how units in the relevant unit trust are owned. I have encountered many instances where 4 "partners" had 25% of the units in a unit trust each, but the shares in the associated trustee company were all in the name of only one of the unitholders. This means that the controlling unitholder can sack the other 3 unitholders as directors of the trustee company at any time, as well as deal with things like bank accounts, signing contracts, etc all in the name of the trust and without recourse to the others.

In most cases, the oppressed unitholders have a legal remedy, but must go to Court in order to do so. Importantly, many of the statutory rights and remedies available to shareholders are not automatically available to unitholders in trusts.

As with most of these issues, the right advice at the startup stage can save a fortune in legal fees down the track. I have no idea how the corporate divorce rate compares with the marital variety, but I suspect that they are at least comparable enough to make a corporate "pre-nup" (a shareholders' or unitholders' agreement) a wise investment.