Who owns the assets when inter-family asset protection arrangements are disputed?
05 March 2024In the recent case of Irwin v Pamplin & Ors (No 4) [2024] NSWSC 73, the Court considered whether assets and shares transferred by the deceased to his mother for asset protection purposes were held on trust and formed part of his estate.
The deceased and his younger brother were members of the Nomads Motorcycle Club. During the 1990s, they were charged with drug-related offences and were also involved in an investigation by the NSW Crime Commission. The brothers were jointly involved in various businesses and owned real estate as well as shares in companies they had established.
From May 2002, the brothers transferred their existing company shares and assets to their mother. Newly acquired assets and new companies that were later established were also either directly or indirectly owned and controlled by their mother.
The de facto partner of the deceased was appointed as the sole administrator of his estate. She sued the deceased’s mother and brother alleging that they transferred the assets to the mother to shield them from possible confiscation under the Proceeds of Crime Act 2002 (Cth). She claimed that there had been an agreement, understanding or common assumption that the deceased’s mother held the assets and shares for the benefit of or on trust for the deceased and his brother in equal shares. She also alleged that the deceased and his brother acted as shadow directors of the companies, keeping de facto control of the companies and the assets.
The deceased’s de facto claimed that 50% of the shares and assets held by the mother of the deceased were held on trust for the deceased’s estate, of which she was the sole beneficiary. Therefore, the deceased’s mother and the companies controlled by her were subject to an estoppel or contractual obligation which prevented the mother and brother from dealing with the assets in any way other than in accordance with the arrangement between the parties.
The mother and brother of the deceased denied the existence of an alleged agreement or common assumption, claiming instead that the new structure was created to pool resources, and that the brothers were indebted to their mother for business loans and legal costs. However, the Court formed the view that evidence provided by the mother and brother did not support this claim. Further, the mother appeared to have limited knowledge of business finances and transactions, which undermined her claim that she was in control of managing the finances and businesses.
After considering the evidence, the Court was satisfied that the deceased believed himself a possible target for investigation by the NSW Crime Commission. He had expressed concerns to his partner and other people that his assets were at risk. Further, the Court was satisfied that this was the motivating factor behind the deceased and his brother’s decision to alter how they conducted their business and to undertake a restructure of their affairs from May 2002.
The Court also concluded that the actions of the brothers established part performance of the arrangement or common assumption, specifically by transferring shares and property to their mother for no value, resigning their directorships, and arranging for a new company and trust to be established. They also continued to work together under the new structure in the same manner as they had before May 2002, including providing personal guarantees to a bank.
The Court found that the parties shared an understanding or common assumption and in relying on that arrangement, they engaged in various transactions including the transfer of assets to the mother of the deceased. Additionally, the arrangement was motivated by the desire to establish an asset protection regime, where the deceased’s mother took ownership and control of assets on paper only. However, the shared intention was that the deceased and his brother retained an equal beneficial interest in the assets.
The Court ordered that the deceased’s mother held 50% of the assets and shares on express trust for the estate of the deceased.
If a family business is thinking about a restructure, it is important to obtain advice from legal and financial experts. It’s crucial to consider the future control and beneficial interests of assets and entities, particularly in circumstances where there may be differing views within the family on the ownership of the assets in the future.