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TALKING TRUSTS: Tammy McLeod, Davenports Harbour Law

Talking Trusts: James & Emma

 James and Emma owned a furniture importing business. They spent three months every year, travelling through Asia, searching for pre-loved and antique pieces that they would then ship back to New Zealand and sell to retailers. 19th century Chinese pieces were particularly trendy at the moment. John and Emma had taken advice when they set the business up and incorporated a company which was owned by their family trust. Their family home was also owned by the trust.

As many small New Zealand business owners do, James and Emma had mostly funded the business from their own savings and also personal borrowings. Even their salaries were used to re-invest into the company, meaning that the trust’s shareholders’ current account was large. Over the ten years the business had been operating, the company now owed the trust in excess of $200,000. James and Emma were looking forward to the day when they would be able to sell the business and realise the extra $200,000 they had invested.

After the GFC things got tougher for James and Emma’s business. Their furniture was beautiful, but people just didn’t have the discretionary income to purchase the pieces that James and Emma were importing. They tried to diversify their business and looked at importing replica furniture rather than the very expensive original pieces they had always purchased, but their hearts weren’t in it, and there were already some very successful replica importers in the market who James and Emma just couldn’t compete with. Eventually James and Emma had to make the sad decision to put their business into liquidation.

The liquidators came in and sold all the stock James and Emma had in their warehouse at fire sale prices. Even though this was well below what they should have got for the stock they held, it was still a reasonable amount as the warehouse had been over stocked for some time. Together with the little cash that was left in the bank, the liquidators were able to pay off the secured creditors and the IRD leaving around $200,000 available for paying the remaining unsecured creditors. James and Emma were relieved as they thought they would get their $200,000 they had invested in the company back. But, sadly, no. The trust stood in line with all the other unsecured creditors and by the time the liquidators were paid, James and Emma’s trust only received $15,000.

If only the trust had secured the money it had lent to the company, it would have been a secured creditor and received the full $200,000 it was owed.

This monthly column is provided by Tammy Mcleod (BA LLB), a partner at Davenports Harbour Lawyers. Tammy leads the Davenports Harbour Trust Team and enjoys providing clients with advice and assistance on a broad range of issues involving the establishment and structuring of asset plans, interpretation of trust deeds, duties of trustees and the management and administration of trust funds. A key part of Tammy’s practice is reviewing existing asset holding structures to ensure they achieve the needs and requirements they were established to meet. She is also experienced in Property (Relationships) Act issues and believes that the provisions of the Act are an important consideration in personal asset planning. Tammy is a past president of the Auckland Women’s Lawyers’ Association and is a current co-convenor of the NZICA Trust Special Interest Group.  To ensure you don't make a similar mistake to James and Emma, take advice. Contact: Tammy McLeod, Email: or visit: 

by Tammy McLeod