31 Jul 2018

Unclaimed trust funds


4 min

Where does the money go?!

Normally when a debt collector receives funds from debtors it’s a fairly straightforward process: pay those funds, less commission, to the client you’re collecting funds for. However, we found the opposite position as liquidators of a ‘late-stage recoveries’ collection firm. And it culminated in us having to ask the question: what happens when clients don’t want their money?

The Australian Taxation Office wound up this company for its $160,000 tax debt. Aside from other unsecured creditors being owed $475,000, the business itself was profitable with a range of notable clients, including several large telecommunications companies, banks, and credit card companies. The business earnt high commission rates due to the age of the debts it collected and at its peak, employed over 100 people. However, the business partners fell into dispute, which impeded effective management and for 12 months prior to liquidation, one director elected to circumvent normal business protocols by recording all company’s collections and remittances on Excel—instead of the company’s specialised collection software.

Upon investigating the company’s trust account, we found funds from thousands of consumer debtors, however due to the state of the company’s records, the payer’s identity was not readily identifiable.

Of those we could identify, we found many had remitted their debt in full, but EFT payments were still being made. Without their contact details we couldn’t ask them to cease making payments.

We reconciled some of the funds and remitted those to the telecommunications company clients. In fact, we sent those funds repeatedly. Despite making various communications and repayment, they kept returning the funds—they didn’t want them! We can only assume those debts were written off some time ago and they had no way to allocate the funds. This was quite a peculiar predicament for us as insolvency practitioners to have.

So, what does a liquidator do with funds held on trust?

For unclaimed dividends, a liquidator must send them to the Commonwealth of Australia Consolidated Revenue Fund via the Australian Securities and Investments Commission (ASIC); however, these funds were not company funds or a dividend as they were trust funds held for other people.

Where trust funds cannot be reconciled, or the owners located, each state has its own trust legislation and rules depending on who is administering them. In general, the trustee of the account must make reasonable efforts to locate the owner of the trust funds (e.g. advertising), wait for a predetermined period (one year in Queensland, up to six years in the Australian Capital Territory depending on the type of trust account), then those funds can be remitted to the relevant state authority along with documentation of the owner’s particulars (if you have any).

Due to the incomplete company records, this liquidation necessitated us to remit the remaining $25,000 to the Public Trustee of Queensland, which acts as custodian over unclaimed trust money. The Public Trustee of Queensland register is free to search for unclaimed monies; however, it relies on accurate and complete information about the rightful owner. The next step to claim those monies requires sufficient documentation to substantiate the claim and enable payment. In this case, the Public Trustee of Queensland may be holding onto $25,000 for the foreseeable future.

The lesson here?

If you or your client are paying money to someone under a repayment plan, ensure they have your current contact information and maintain your payment records to avoid overpayment. Similarly ensure you and your clients keep their records in relation to debtors and any investments which would be needed to make a claim to an unclaimed monies fund.

For advisors who suspect business operations and records of their clients are deteriorating, early intervention is key to avoid a similar situation. Our partners are able to have these hard conversations with your clients.

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