Doing business with a trust entity

Don't let your business get washed away

Did you know that a trust is not a legal entity for the purpose of enforcing a debt? This means it can be incredibly difficult, and sometimes simply impossible, to enforce a debt unless you know the name of the trustee of the trust.

When you receive a credit application, or signed terms and conditions, you will often see the business name as something like “The ABC Family Trust” or “The ABC Family Trust Trading As ABC Widget Supplies” and your new customer will often provide an ABN that matches the trust (when you do a free ABN Lookup).

While a trust is a perfectly legitimate structure for accounting purposes, its is not a legal entity that can be readily sued if they don’t pay you at some point into the future.

Whenever you are doing business with a trust, it is critical that you find out the name/s of the trustee/s of the trust. The trustee can be either a company “ABC Pty Ltd As Trustee for the ABC Family Trust” (known as a corporate trustee) or it can be one or more individuals, something like “Allan Smith & Bonnie Smith As Trustee for the ABC Family Trust” (known as individual trustees). It can even be a combination of both a corporate and an individual trustee (but that’s quite rare).

There is no “searchable” register of trustees, unlike incorporated entities where you can do an ASIC search to identify the Directors and Shareholders of company. If your customer decides to not pay you, and you have neglected to get the trustee details from the outset, it can be a complex and expensive exercise to recover your debt if you are forced to take legal action.

GET THE INFORMATION WITH THE CREDIT APPLICATION

The only sure-fire way to confirm the name/s of the trustee/s, is to ask for a copy the customer’s Trust Deed, which will clearly define those important details.

You might be able to simply ask the customer for the trustee details, but we’ve seen many cases where the customer (or the person you are dealing with) doesn’t understand their own trust structure, so they inadvertently give you the wrong information – or even argue that you don’t need the information. If in doubt, ask for a copy of the Trust Deed.

If you’re in doubt about how a credit application, or terms and conditions should be executed, or if you are concerned that you may not have the correct information, feel free to drop me a line, often a 2 minute chat will save you a world of pain if you have to enforce that contract at some point.

Lastly, the bottom line is this: whenever you are selling your goods or services to a trust, be sure to fully understand their structure first.