An Auckland family trust accountant is not surprised by moves to wind up the trusts of two fraudulent accounts, but says it is a rare move.
JT Law’s Jamie Grant has applied to the Wellington High Court to liquidate the TPS Asset Trust and TPS Asset No 2 Trust, which were set up by jailed accountants Barrie James Skinner and David Ingram Rowley.
The pair was found guilty in July on 80 charges each of tax avoidance, fraud and attempting to pervert the course of justice.
Gilligan Rowe and Associates trustee services director Janet Xuccoa says the High Court has over-riding power when it comes to trusts and even if the terms of the trust deed do not allow for the trust to be wound up, the court can allow for it in these circumstances.
According to the Companies Office, a trust can be liquidated by the High Court "if it considers it just and equitable to do so".
Ms Xuccoa says it is uncommon because trusts are not meant to be wound up.
“When you set up a trust, you intend for it to last anything up to 80 years. You want it to carry on.”
Ms Xuccoa says it is not too hard to wind up a trust, but people first need to look at the terms of the deed to see whether it is possible, and if it is, all the liabilities would first need to be cleared and the assets returned.
If it is not possible, then trustees would have to look to legislation or case study history.
She says if anything, trusts are more popular than ever because most New Zealanders are aware of the possibility of means testing in the future and it is a protection against creditors.
“People have been burnt, through no fault of their own, during the global financial crisis.”
Ms Xuccoa says people turn to trusts because of the rise of blended families and second families.
In the case of Skinner and Rowley, over five years from September 2005 they sold a scheme to clients which they said would "shelter" them from tax payments.
The scheme involved false invoices and a trail of "shell" entities for services which were never provided or, if they were, were provided at a value much lower than that recorded on the invoice.
The scheme cost the IRD between $1.8 million and $2.3 million in lost tax – of which about $1.5 million is "uncollectable".
Skinner was sentenced to eight and a half years' jail, while Rowley got eight years.
They have already been bankrupted and Mr Grant, who is acting on behalf of BNZ, has filed and served the papers to liquidate the trusts.
He told NBR ONLINE it is not a very common process but he cannot understand why.
“There’s no good reason why it’s not done very often. The process itself is a hangover, it’s an old provision which is actually contained in the Judicature Act, as opposed to the High Court rules.
"I have no idea why it’s not used more.”
He says the trustees of a trust maintain an indemnity from the assets of a trust for any debts they incur in the names of the trust. The trust is what is commonly used to access trust assets when an individual is bankrupted for the debts of the trust.
Mr Grant believes there is no reason why it should be any different to a normal application to liquidate a company. He expects the possibility of more applications in the future, given it’s not hard to liquidate a trust.
The Insolvency and Trustee Service was not sure how common the practice is.
Ministry for business, innovation and employment spokesman Brittin Broun says if the liquidation goes ahead, the official assignee will fix a date for creditors to lodge claims and those claims will be assessed.
If you need help with these matters, please contact Trustee Services Partner, Janet Xuccoa by calling (09) 522 7955 or emailing me at jx@gra,co.nz. Also I have just released "Family Trusts 101" Revised 2012 edition with the lasted information on gifting order it today.