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Partnership Going bad - trust & Pty

Discussion in 'Accounting, Tax & Legal' started by aussie, 2nd Jul, 2012.

  1. aussie

    aussie New Member

    Joined:
    2nd Feb, 2010
    Posts:
    3
    Location:
    Vic
    Hi,

    I joined a partnership arrangment with a friend to borrow & invest in vacant block to build some units.

    I invested using my family trust which has my wife & I are trustee's, my friend invested via his family trust but with coporate trustee's.

    Now after we obtained the building approval from council etc to go ahead, my partner has fallen on hard times and finding it hard to even fund his share of the land loan & does not have good financials to get a development loan to build the units ?
    50 /50 chance he may go under ?

    So where do I stand ?
    Yes I shoud have used a corporate trustee, but cannot change that - or can I ??????
    My wife has the family home in her name & I operate a business though the trust.

    I presume every thing is at risk my end if my partner goes under ?

    Aussie
     
  2. Terryw

    Terryw Well-Known Member

    Joined:
    9th Jun, 2006
    Posts:
    653
    Location:
    Sydney
    Hi Aussie

    You and wife as trustees will be jointly liable for the loan with the company. If the company don't pay then you must or you will cop the default and have the bank come after you both - not the company. The bank will leave that alone as it has no assets and you do.

    But your mate would have provided a personal guarantee. The could come after him, but if he has no money then they probably won't.

    A trustee is personally liable for trust debts - and you both would have given personal guarantees as well. But a trustee has a right, usually, to be indemnified out f the trust's assets - won't help you if the trust don't have any.

    You could consider buying your mate's trust's share of the property and trying it yourself. But, take legal advice if he is going down as transactions can be reversed.

    It is possible for you to change trustees to a company, but this will be complicated. In NSW stamp duty could be payable depending on how your deed is worded. The main thing will be the lender - you will have to redo the loan and apply again and if your mate is in trouble then it may be impossible. Changing trustees will not assist in asset protection for this as it is already happening and you are exposed.

    I suggest you get legal advice asap and consider putting the land on the market to sell before things get too bad.
     
  3. Terryw

    Terryw Well-Known Member

    Joined:
    9th Jun, 2006
    Posts:
    653
    Location:
    Sydney
    For others I should point out the dangers that Aussie has exposed himself to - sorry Aussie. Wise people learn from the mistakes of others.

    1. Using 2 trustees. No point really. It just exposes an extra person.

    2. Using an individual as trustee. Using a Pty Ltd company can limit liability usually

    3. Guarantees - 2 trustees or 2 directors of a company means the lender will require personal guarantees from both. This needlessly exposes one.

    4. Having the person who owns the family home as trustee. This exposes all the assets held by that person.

    5. Running a business in the same trust as holds the assets. This needlessly exposes the business when a situation like this arises. Also a business is a risky thing and if there are disputes the assets of the trust can be at risk - the land in this case.
     
  4. GregR

    GregR Reid Consultants

    Joined:
    13th Jul, 2009
    Posts:
    273
    Location:
    Berwick Vic
    Terry,
    Great advice for potential developers and especially those using trust structures and joint ventures to invest with.

    Greg
     
  5. aussie

    aussie New Member

    Joined:
    2nd Feb, 2010
    Posts:
    3
    Location:
    Vic
    Thanks Terry for the reply & advice.

    I will be trying to sell the property as soon as possible
    and will learn from my mistakes !!!!!

    aussie:mad: