Trust payments, distributions and risk: what the recent Kupang Resources decision means for you

If you are a trustee, beneficiary, business owner or adviser dealing with trust money or assets, the NSW Court of Appeal’s decision in Commonwealth of Australia v Kupang Resources Pty Ltd [2026] NSWCA 161 is an important reminder: receiving trust money can create legal risk if there are warning signs about where it came from or whether it should have been paid.

Although the case involved the ATO, the lesson is broader. It may affect anyone who receives, pays, distributes or manages funds connected with a trust or fiduciary relationship.

What happened in Kupang?

Mr Phillip Grimaldi, a de facto director of Kupang Resources, was found to have acted dishonestly by breaching his statutory and fiduciary duties. He improperly obtained securities and profits connected with mining interests and was required to account to Kupang for those profits.

Some of those proceeds were then used to meet Mr Grimaldi’s personal tax debt. The funds ultimately passed to the Commonwealth through the ATO.

Kupang argued that the Commonwealth had received money to which Kupang was beneficially entitled. The Supreme Court of NSW agreed, and the NSW Court of Appeal upheld that conclusion.

When can a recipient be liable?

The key concept is “knowing receipt”. In practical terms, this can arise where a person or organisation receives trust property, or property connected with a fiduciary breach, in circumstances where they know enough to make the receipt legally problematic.

The recipient does not need to have committed the original wrongdoing. If they receive the property with the required level of knowledge, they may have to return it or face remedies similar to those available against a constructive trustee.

That knowledge can include deliberately ignoring the obvious, failing to make inquiries an honest and reasonable person would make, or knowing circumstances that would alert an honest and reasonable person to the relevant facts. In short, red flags matter.

A significant point in Kupang was that unauthorised profits obtained by a fiduciary can be treated as property to which these principles apply. Even though Mr Grimaldi personally received the profits, he was legally required to account to Kupang for them.

What should clients take from this?

This decision is relevant if you have a family, investment or business trust, are expecting a trust distribution, operate through related entities, or rely on accountants or advisers to manage trust transactions.

Before receiving or approving a payment, ask: Where did the money come from? Is the trustee authorised to make the payment? Are there disputes between beneficiaries, directors or related entities? Has anyone raised concerns about the source of the funds or the purpose of the transfer?

Kupang also shows that a payment can create risk even if it is made for an apparently proper reason, such as paying a debt. The issue is not only why the payment was made, but what the recipient knew, or should have recognised, about the circumstances.

If there are concerns about the source of trust property, a possible breach of trust or fiduciary duty, or the circumstances surrounding a proposed payment or distribution, those concerns should be addressed before the funds are received or dealt with. Early legal advice can help identify red flags, document the basis for the transaction and reduce the risk of later personal liability.

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