Most business owners don’t understand that trusts no longer protect your trust businesses assets. Trust asset protection has been the most common strategy for Australian business owners for generations. Businesses often use trust structures to separate high-value assets from their trading entity to ensure that the trust assets remain unaffected should their trading entity get into financial difficulty. Quite often these events can be outside of the business owners control.
Recent legislative changes bring into question the protection provided by trusts. If you haven’t updated your trust structure, your trust and business assets are now at risk.
Legislation Changes That Ends Traditional Trust Asset Protection
The new Personal Property Securities Act (PPSA) is a turning point regarding asset protection. The PPSA legislation requires registering goods or equipment on the Personal Property Securities Register (PPSR) to validate ownership.
In the past trusts structures were used protect a business’s assets from any potential liabilities. Under current law, the assets of a trust are now open for seizure in the event where the operating entity fails to meet their financial obligations. This liability is present even if financial failure of a business is outside the owners control, such as market conditions or client failures.
Title No Longer Exists Without a PPSA Registration
Under the PPSA legislation, goods, equipment and other business assets must be registered on the Personal Property Securities Register (PPSR). This legally validates the owners claim over the goods or equipment. Without PPSR registration, the title is void, and your assets are vulnerable.
It is a long way from the comfort of traditional trust structures. Liquidators’ powers over unregistered assets during insolvency proceedings are now even greater, which increases the potential risks for businesses failing to properly register their assets.
Power of Liquidators
Liquidators now have the right to seize trust-held assets when a business fails to meet its financial obligations. Consequently, businesses must take proactive steps to protect their assets and ensure compliance with financial responsibilities.. This happens when a business ends up in liquidation. Even if the financial distress is caused by conditions beyond a business owners control. These conditions can include a disrupted supply chain or a client insolvency.
Ways Forward: A Consistent Trust Structure Update
Ensure you regularly update the trust structure and include the appropriate PPSA legislation. This will ensure the protection of your trusts assets. You should make sure that you:
1. Create Chattel Lease
Execute a Chattel Lease which is a lease agreement which incorporates a list of assets. A Chattel Lease sits between your trust or holding entity, and your trading entity. It includes a list of the trust’s assets, which you should update regularly.
2. Registration on the PPSR
Register your Chattel Lease with a valid legally binding PPSA registration on the PPSR. This will legally secures ownership, thereby protecting your assets from any potential future claims.
3. Regular Monitoring
Trust structures require active monitoring. Periodical renewals will ensure that your PPSA registration is always valid. Failure to update your asset protection strategy may lead to severe financial losses, including the liquidation of business assets.
Final Words
For the last 40 years, businesses have relied on traditional trusts; however, these no longer protect a trust’s assets. As a result, ever since the Personal Property Securities Act legislation came into effect, business owners have been required to reevaluate and update their trust structures to remain compliant and safeguard their assets effectively.
Failure to be proactive may cause the loss of valuable assets. This could happen overnight, risking business operations and cash flow.
By positioning your business according to these new legal requirements, you ensure protection for all your assets. Trust asset protection today isn’t just about setting up a trust; it requires a thoughtful and informed decision making process.
Contact Collection Consultancy Australia today to protect your business and trust assets and negate any future claims from liquidators. Secure their future now!