Trading Trust Debt and Personal Liability

by Johan Oosthuizen


Debtor

Separation of risk is one of the main benefits of using the trust vehicle to hold assets and to conduct business. There are different types of trusts that are utilised to achieve this separation of risk (Trading, Family, Property, etc.).

What risk are we attempting to separate from whom and what? The type of risk in question here is creditors who has a claim to our personal estates and also to certain trusts in our portfolio – this does not include our Family Trust as we keep this trust completely creditor free. We are thus fragmenting our business into different entities to protect higher risk ventures from low or no-risk ventures.

This principle has been challenged in the Supreme Court in M v M 2017 (3) 371 (SCA), where the appellant created a trust and other entities every time he pursued new business ventures. The object was to isolate each business so that the financial demise of one would not affect the financial viability of any of the others. The Court held that this was “obviously a legitimate business activity” and the trust in question had to be viewed as part of the appellant's overall business strategy. The Court therefore confirmed that utilising a trust for this purpose is not proof that the trust is used merely as an alter ego or that this is an abuse of the trust form.

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