The Shortfall Conundrum: A New Framework for Allocating Losses in a Mixed Fund in Australia

This article analyses the various methods available to courts in Australia for allocating a loss of trust funds to the beneficiaries of a mixed fund. These distinct methods can be used to allocate a shortfall of trust funds that has occurred due to a fraudulent misappropriation committed by the trustee or as a result of other operational risks. There is still a debate in Australia over the best method for allocating any losses to beneficiaries when there is a shortfall in a mixed fund. Significantly, this article introduces a new practical framework with guidelines for allocating losses in a mixed fund in order to enhance legal
certainty for beneficiaries, trustees, insolvency administrators, and courts. It also
introduces a new method of distribution that beneficiaries can adopt. The new framework considers the intention (actual or presumed) of the beneficiaries to be the main factor for determining the method of distribution that is applied in allocating a shortfall.