TRADING TRUSTS AND STRAW TRUSTEES: Principles & Problems Reconsidered.

Abstract

The attractive combination of limited liability1 and taxation advantages2 resulted in an explosion in popularity in the 1970s of the trading trust, using a straw corporate trustee, to carry on a business enterprise. The legal treatment of the resulting entity throws together principles from diverse areas and the solution to a specific problem may cause an incompatibility of a principle from one of the areas with a principle from another. The resolution may cause the principle from one of those areas to be inapplicable, though it might normally be applied in less complex situations. The appointment of a nominee limited liability company with a paid-up capital of $2 which then becomes insolvent, juxtaposes various principles of equity and in particular, those drawn from fiduciary obligations, the law of trusts, priorities, and what
has been described in this context as the 'invidious' use of  subrogation, with rules drawn from company law and the law of insolvency, to produce what has been thought by some to be a commercial monstrosity'.Whilst much has been written already upon various aspects of this vexed area,in addition to considering recent developments, this paper attempts to re-examine comprehensively the diverse rules and their implications for the respective parties and to identify those aspects which either remain in doubt or whose resolution under existing rules is questionable.