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Trustee Resolutions, Trusts

Loan or investment?

The thorny subject of the informality that can occur with family arrangements involving loans and trusts and the resultant lack of accord when relationships sour is not new.  See Is it a bird, is it a plane, is it a loan?

The issue has arrisen again in the context of a statutory demand issued by the purported trustee creditors. 

The facts of the case although detailed, can be restated as the trustees allege two loans were made to BWIP Limited (BWIP), and that those loans should be re-paid together with interest.   

BWIP’s position is that the advances are not disputed and that each advance represented an investment in BWIP, not by the trust, but by the company director’s brother Lester. 

Whether Lester has acted personally or as the trust’s undisclosed principal is also in dispute. The significance of whether the transaction relates to a loan or an investment will determine the amount available to the lender / investor, due to BWIP’s insolvency.

Each side of the dispute can point to e-mails in support of the respective positions.  

No evidence as to the existence of the trust was provided to the court.  The payments were made, not by the trustees, but from Lester and his wife’s joint account.

The trust’s position in this regard is that Lester had authority to act for the trust and regardless the trustees since ratified his actions. 

The court’s view in this regard was that that argument that the investment decisions were subsequently ratified was not available in the circumstances and that it is not “sufficient for the trustees simply to assert that Lester was a trustee “at all relevant times” and had the authority of the trustees at the time of entering into the transaction. The demand was issued by the present trustees, yet the only evidence is that given by Lester. There is no evidence as to whether there were other trustees at the time nor as to the requirements of the trust deed as to how the trustees were to make decisions. There is no evidence of any resolution by the trustees as to the payments, nor as to when the alleged extracts from the financial statements of the trust, which are undated and unsigned… “[para 41]

The omission of the present trustees to given evidence was considered significant and the inference drawn that the trustees did not have any actual knowledge.

The result was that the statutory demand issued by the trust was set aside due to the court’s finding that there was substantial dispute to determine regarding the nature and origin of the advances to BWIP such that the statutory demand could not be upheld.

The case highlights, again, the need for documentation as to the nature of the arrangements (particularly those involving related parties) and how, had the trustees had anything to provide the court to demonstrate collective decision making, the outcome might have been quite different.

References:

  • BWIP Limited v ATM Finance Trust [2012] NZHC 3174
  • Companies Act 1993, s 290(4)
  • Welsh Development Agency v Export Finance Co Ltd [1992] BCC 270 (CA) at 277, followed in Stokes v Insight Legal Trustee Co Ltd [2012] NZHC 1822 at [58]
  • Peter Watts and F M B Reynolds (eds) Bowstead & Reynolds on Agency (19th ed, Sweet & Maxwell, London, 2010) at [2 – 060] and [2 – 065]
  • Siu Yin Kuang v Eastern Insurance Co Ltd [1994] 1 All ER 213 (PC) at 220-221

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