Jack and Jill are the only shareholders and directors of Uphill Pty Ltd which is a trustee of the King Trust. The beneficiaries of the trust are Jack, Jill, and their children. The capital and assets of Uphill Pty Ltd are valued at $100,000. The company runs a fresh produce business on behalf of the trust. The trustee is authorised, under the terms of the trust deed, to engage in wholesale and retail trade in the fresh produce business.

The fresh produce business is a great success. As a result, Jack and Jill decided to expand the business. They ordered $300,000 worth of goods on behalf of Uphill Pty Ltd from Mr. Frosty Pty Ltd, suppliers of refrigerated products. The trust assets, at the time of order, were worth $200,000. Jack and Jill have substantial assets. Even though Uphill Pty Ltd took every care with the expansion of the business, the business suffered large losses which resulted in the closure of the business.

Advise Mr Frosty Pty Ltd as to its rights to recover the unpaid debt from the trust.

Essential Reading

Hargovan, Adams and Brown: Australian Corporate Law, 7 th ed, 2021 (LexisNexis) Chapter 3 (pp 66-73)

Corporations Act: Ch 2D [Part 2D.1]

Cases: [see prescribed textbook for the legal principles]

Salomon v Salomon [1897] AC 22