As soon as the business or investment structure involves entities such as companies, it is inevitable that there will be intra-group loans arising from either:

• deliberate choices in respect of financing particular investments and the extraction of capital from the group on short or long-term arrangements; or

• unintentional loans arising from the operation of the group over time and the movement of funds often undocumented as at call loans appearing only in the financial statements of the entities.

Unpaid present entitlements (UPEs) further complicate group structures once trusts are involved.

A UPE arises where the trust has made an appointment of income or capital to a beneficiary but has not paid or applied amounts in respect of the appointment in full. This may have arisen where the trust does not have sufficient cash or fungible assets to use in discharging the entitlement created by the appointment or it is applying the amount in the continued operation of the trust through investing in assets or working capital. This results in an entitlement that may be called for by the beneficiary immediately upon its creation and hence the description “unpaid present entitlement”.

A UPE, being a right held by a beneficiary of a trust to call for immediate payment of a specific amount, will be enforceable in equity and is proprietary in nature.

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