Business structures




01 Mar 2017

Statutory trustees—not always appointed only over real property


5 min

Consider appointing a ‘special referee’ to expedite partnership dissolutions.

Lawyers, especially those who have practiced in property law, and many accountants would be very familiar with the provisions in their State Acts that allow someone to be appointed a ‘Statutory Trustee for Sale’ over real property. In Queensland, it is section 38 of the Property Law Act 1974.

While each state’s Acts may vary in wording, they allow for an independent party to be appointed to affect the sale of real property where the co-owners are in dispute and to distribute the proceeds.

So, the two main criteria are:

  1. There is jointly owned real property; and

  2. The co-owners cannot agree on how to sell or otherwise deal with the property.

Some of these appointments are over residential properties. It may be that spouses have separated and cannot agree on what is to happen to the property. It may be that parties had joined together to buy an investment property and now each want to go their separate ways but cannot agree on how. Or it may be that a bankruptcy trustee is trying to enforce the sale of a property with an uncooperative co-owner.

In other cases, the appointment is over commercial or industrial property that is owned jointly. More on a possible complicating factor later.

In its simplest form, the Orders sought in both cases are to have someone sell the property and account to the co-owners for the surplus. But certain alternatives can be placed into these orders to expedite the process.

The Order may provide that the trustee can:

  • Offer the property to the co-owners under circumstances where all co-owners have an opportunity to make an offer for the property—where the best offer wins; and/or

  • Allow the co-owners to bid for the property at any auction of the property.

We are currently finalising such an appointment where one of the co-owners bought the property after all co-owners had had the opportunity to make their best offers. Obviously winning offers would have to be above the valuation to be acceptable.

This not only sped up the process and saved costs, it also achieved a price acceptable by all and above market value. If no offer had been acceptable, the property would have been taken to the market in the usual way and all parties would have had the opportunity to bid for it.

Statutory trustee for sale appointments are not uncommon and sometimes are the only way that the dispute between the parties can be resolved.

This is where another interesting aspect may arise when planning to apply for such an order.

If the parties own a commercial property (and in limited cases where they own a residential property) with a view to receiving rents, it is likely that a legal partnership exists and quite possibly a formally registered partnership is in place.

If the only asset (the only business) of the partnership involves the ownership of the real property, the question remains of what happens to the partnership once the property is sold. If the partners cannot agree on selling the property, there is little likelihood of them agreeing on how to wind up the partnership and agreeing on the finalisation of partnership tax returns etc.

These appointments are slightly different to Court Appointed Receivers which are based on controlling and realising a business where the partners cannot agree on an outcome. These appointments may or may not have a real property involved.

The Order in our matter mentioned above had a second part. Not only were we appointed as statutory trustees for sale, we were also appointed as ‘special referees’ to the partnership—the wording used in this particular Order. The court ordered that we were also appointed for the purposes of dissolving the partnership and ensuring that all partnership financial accounts were prepared and tax returns filed, and distributing the surplus to the partners in accordance with the capital accounts. Mechanisms were included to ensure that the partners had a voice in the process, though no control.

The lawyers for the partners realised that we would not be able to distribute the proceeds from the sale of the property until all the outstanding partnership accounts had been prepared with a proper calculation of the partner’s capital accounts. It was not as easy as a 50/50 split of the proceeds. They also realised that these accounts and returns were needed by their clients for their own reporting obligations.

So, the next two things to consider are:

  1. Is there a partnership that only involves the property as its business?

  2. Does someone independent need to be appointed to wind up the partnership, finalise the accounts and ensure that all returns are filed?

If so, a ‘special referee’ type of appointment could be beneficial to the dissolution of the partnership.

The fact that the court gave us both selling and referee powers meant that the proceeds of the sale could be distributed without the possibility of a lengthy delay waiting for the partners to prepare and agree upon partnership financial statements and lodge tax returns.

These are some of the factors to consider if you have clients considering the need for a statutory trustee for sale.

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