The High Court's decision in Naaman v Jaken Properties: Key lessons for creditors of trusts
The recent High Court decision in Naaman v Jaken Properties Australia Pty Ltd [2025] HCA 1 raises critical issues for creditors seeking to recover debts from trusts. The case underscores the vulnerability of creditors when trust assets are dissipated, the importance of a trustee’s right of indemnity, and the potential avenues for creditors to enforce claims against trust assets.
Background facts
Mr. Naaman, a judgment creditor of the Sly Fox Family Trust (Trust), sought to enforce a $3.4 million debt against Jaken Properties, the successor trustee of the Trust. The crux of the case revolved around whether Jaken as successor trustee owed a fiduciary duty to the former trustee not to deal with trust assets in a manner that would jeopardise the former trustee’s right of indemnity. The majority in the High Court ultimately ruled that no such fiduciary obligation exists, agreeing with the majority in the Court of Appeal, who reversed the trial judge’s decision.
Key Takeaways for Creditors
Limited Recourse to Trust Assets
Creditors cannot assume that a successor trustee has an overriding fiduciary duty to protect the indemnification rights of a former trustee.
A creditor subrogated to a former trustee’s indemnity rights may face significant hurdles if trust assets are later transferred away.
Trustees' Right of Indemnity as a Creditor Protection Mechanism
The Court reaffirmed that a trustee’s right to indemnification from trust assets is a proprietary right that takes priority over beneficiaries' interests.
However, this right may not prevent subsequent trustees from structuring transactions that diminish available assets.
Asset Protection Strategies Can Frustrate Creditor’s Claims
In Naaman, the successor trustee engaged in transactions that effectively stripped the trust of assets, limiting the creditor’s ability to recover.
This highlights the importance of due diligence when dealing with trust structures and securing additional protections, such as personal and other guarantees and security.
Potential Remedies for Creditors
While a successor trustee may not owe a fiduciary duty to a former trustee, creditors may still pursue equitable remedies, such as claims for knowing receipt or dishonest assistance against third parties involved in improper asset transfers.
Proactive legal action, such as caveats or asset freezing orders, can help prevent asset dissipation.
Implications for Creditors Moving Forward
This case reinforces that creditors dealing with trusts must exercise caution. The limitations placed on fiduciary obligations in Naaman signal that creditors cannot rely solely on the assumption that trust assets will remain accessible. Instead, robust due diligence, contractual protections, and strategic litigation planning are essential to mitigating the risks posed by trust structures.
As trust structures remain a common vehicle for asset management, this decision serves as a timely reminder of the complexities involved in creditor enforcement. Understanding these nuances will be critical for businesses, lenders, and legal practitioners navigating the evolving landscape of trust law.