Going beyond the trust veil in insolvency and divorce matters
MetadataShow full item record
This mini-dissertation is aimed at analysing the requirements the court takes into consideration when deciding to pierce a trust veil in either insolvency or divorce matters. A clear exposition of the legal nature of a trust is provided to determine how a trust affords the extensive protection to trust assets, the very characteristic that makes it as popular as it is today. It is due to this protection of trust assets that a trust has become the object of abuse by founders and trustees, and the court has felt it necessary to introduce a remedy. In Badenhorst v Badenhorst the court stated that the company law doctrine of piercing the veil should be extended to trust law. Some authors criticised this judgement, and arguments pro(for) the extension is included in the conclusion. The research explored the circumstances that warrants the piercing of a trust veil and it was found that the court is likely to pierce a trust veil if the trust form was abused. The study then shifts its focus to the type of abuse the court seeks to remedy. A trust can amount to be the alter ego of a person or a court can deem a trust to be a sham. The research investigates the distinction between the two in depth, and the resultant finding is that only alter ego trusts will be pierced by a court, since a sham trust means that no valid trust has in fact been formed and therefore there is no veil to pierce. Often the courts are confused by the two and the likelyhood of a trust being labelled a sham by South African courts are slim. To find that a trust was abused, the courts will look at the essential requirements of forming a trust to determine the validity. The most important factors that the court considers when deciding to pierce the veil, is the type of control over the trust assets and the intention with which the trust is created or kept. An extensive analysis of the Companies Act and the doctrine of piercing the veil was done to probe their compatability with trust law and to see if the remedy is in fact effective and correctly applied. Case law to support the court‘s view and application of the mentioned doctrine is discussed and evaluated. The study closes with an evaluation of the procedure of piercing the veil and the consequences following such piercing, as well as the arguments for allowing piercing of a trust veil to force trust users to obey the basic trust idea of separation of enjoyment from control.
- Law