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Corporate trustee, General, insolvency, Trustees, Trusts

Corporate trustees – whine whine whine

The recent decision in SW Trust Limited v Grandad’s Limited highlights, yet again, the number of corporate trustees operated by professionals that accept multiple trustee appointments but that do not appear to wish to be in the trustee business.

In the judgment it is noted that:

“First, the applicant is a corporate trustee. It was incorporated by the law firm Simpson Western, and partners in that firm are its directors. It administers approximately 100 trusts set up by clients of the firm. The respondent has no real desire to inconvenience it or the various clients of Simpson Western who utilise its services. Rather, the respondent asserts that it has been compelled to issue a statutory demand on the applicant, because it is a trustee of the Houhora Trust, and because a debt is owing to it.”

Very few people, whether or not they are corporate trustees, wish to be a party to legal proceedings. Proceedings are time consuming, generally public and often expensive.

The message to appreciate is that a trustee is not a cipher. A trustee, whether a natural person or a company, in accepting appointment agrees to manage the trust for the benefit of the beneficiaries.

This means that at times enforcement action may be necessary. Where that might affect other trusts administered by the trustee, the question for both the trustee, and the settlor of any trust that might appoint the trustee is, how well placed is the trustee for accepting multiple appointments?

It is well understood that if a trustee company does not have its own capital resources, any trust for whom the company acts can be exposed to the consequences of another trust’s insolvency or other proceedings.

This being the case, and given the modest cost to incorporate a dedicated trustee company with a customised constitution (if required), it is perplexing that the multiple trustee appointment model still flourishes in private practice. It has been almost a decade since the Court of Appeal decision in Chester Trustee Services where the court found that the fact that the company acted as trustee for a number did not mean the company could avoid liquidation following a single trust’s insolvency simply by virtue of the fact that the company was a trustee and inconvenience and expense would flow to unrelated trusts.

When settling trusts, settlors need, perhaps, to better consider the position of the trust if the trustee is liquidated, and the likelihood of the same.

References

CIR v Chester Trustee Services [2002] NZCA 258

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