Unintended consequences: International accounting standards, public unit trusts and the rule against perpetuities

Abstract

Australian adoption of international accounting standards from 1 July 2005 has had a number of unintended consequences. When unit trust deeds have "buy-back" provisions, operative on pre-determined vesting days, international accounting standards re-classify units in those trusts as "debt" rather than "equity" interests. Responsible entities of managed investment schemes structured as unit trusts are among those affected. Unit buy-back provisions operative on vesting day are a common feature of scheme constitutions because of the widely-held belief that unit trusts are void unless they vest within a period defined by the rule against perpetuities. This article examines that belief and concludes that the rule against perpetuities does not generally affect Australian unit trusts. Attempts to elude the perpetuities rule are then reviewed. An apparently insuperable problem involving unit trusts and perpetuities in the conflict of laws is identified. Mutually inconsistent perpetuity periods may apply to unit trusts which hold real property in several jurisdictions