Mr Speakman said the review has become paramount due to the increasing confusion surrounding trust beneficiary liability.
“Trusts often involve individuals or businesses investing in a common asset - such as a large property, infrastructure project or shareholding - that is administered by a trustee,” Mr Speakman said.
“There has, however, long been uncertainty about what liability, if any, investors face if the trustee fails to fulfil obligations of the trust, for example, by entering into debt that cannot be satisfied.”
Mr Speakman said the NSW Law Reform Commission will examine three important factors.
The first, he noted, is whether there is a need to introduce laws to limit or remove the liability of beneficiaries to indemnify trustees or creditors when trustees fail to meet the obligations of the trust.
Secondly, the commission will examine whether it is appropriate to restrict the liability of investors to the amount outstanding on their share of the investment, in the same way as holders of fully paid shares have no further liability.
Finally, the commission will examine whether oppression remedies available to shareholders under company law should be extended to beneficiaries of trading trusts.
“The government wishes to ensure trust beneficiaries are protected in appropriate cases, but not provide an opportunity for company directors to avoid responsibility for insolvent trading,” Mr Speakman said.
According to a statement, the NSW Law Reform Commission is due to report to the state government by 30 April 2018.