Corporate trustees are a common feature of modern trading trusts. The basic rationale is that the use of a company means that any liability that would otherwise accrue – say to a natural person trustee – accrues instead to the company and provided the directors do not breach the duties owed under the Companies Act 1993, in the event of insolvency, there is no loss to the Trust. Corporate trustees used in these circumstances generally have no assets.
Not all support the use of such companies as a trustee. Ford stated in Trading Trusts and Creditor’s Rights that “the fruit of this union of the law of limited liability companies [is] a commercial monstrosity.”
Arguably, Commissioner of Inland Revenue v Robertson, where Robertson unsuccessfully sought summary judgment that the CIR’s claim against him to recover $159,901.58 of GST refund paid by mistake to a trustee company of which he was the liquidator, supports Ford’s views.
The facts of Commissioner of Inland Revenue v Robertson are not entirely straight-forward, and as the matter was heard on a summary judgment basis there are still facts not in evidence.
Simply put the relevant facts for the purposes of this discussion are:
- trading trust (WBR Trust) settled by Mr Brown was a property trader
- the deed for the WBR Trust provided for an appointor, but no appointor was named
- trustee was Hukatere Coastal Trustee Limited (Hukatere)
- Hukatere was insolvent due to GST arrears
- Mr Brown purported to remove Hukatere and appointed RVB Corporate Trustee Ltd (RVB) as trustee of the WBR Trust on or about 29/3/2010. Note that Mr Brown did not have a power of appointment and Hukatere was not party to the deed removing it as a trustee
- on 14/4/2010 Hukatere was placed into liquidation. Mr Robertson was the liquidator
- in September 2010 Mr Robertson, as liquidator receives GST refunds since argued by the Commissioner to have been paid in error, totalling $159,910.58.
- In December 2010 Mr Robertson pays $152,387.89 to RVB’s accountant. That sum was then later paid to RVB’s accountant who paid it to the trustee (Shakespeare Trustees Limited) of the Napier Investments Trust. No evidence was given that Shakespeare Trustees Limited was a trustee (or beneficiary) of the WBR Trust
- the Commissioner says the money was paid in error and wants it back
- Mr Robertson’s position is that he is not required to return the funds to the Commissioner
In considering the matter the court sets out a number of general propositions at  that usefully canvass the often underappreciated issue as to what trustee is liable for what when there has been a change of trustee.
- a trust is not an independent entity
- a trustee who incurs liability is personally liable for the debt – this includes tax debts
- a trustee has a right of indemnity for liability incurred as a trustee that is secured by an equitable lien – this right includes rights of realisation, retention, exoneration and reimbursement from trust assets
- trust assets vest on new trustees when a trustee is removed or retired – see s 47 of the Trustee Act 1956
- retirement does not extinguish any liability incurred before retirement or impose liability on the new trustee for those debts – but the new trustee takes the trust assets subject to the former trustee’s rights of indemnity for that liability
- on liquidation a company’s assets are controlled by the liquidator – but are not the liquidator’s property
- a trustee’s liability for GST does not cease on retirement but continues until the Commissioner is notified of the retirement.
One of the issues in the case in hand relates to when Hukatere was removed as a trustee and whether this was before its liquidation. This is important as different outcomes are possible depending on when the trusteeship ended.
It is difficult to see how it can be argued that a sole trustee can be removed by a deed to which it is not a party in circumstances where a power of appointment has not been exercised. This is because s 43(1) of the Trustee Act provides that where there is no appointor who can act, it is the trustee that has the power (exercisable by deed) to appoint a new trustee. This matter will be considered further at the substantive hearing. It does highlight (again) the need to review deeds of appointment and removal against trust deeds, and in some cases the Trustee Act, to ensure an effective deed.
The case raises important fact specific considerations about when (or whether) a trustee is entitled to a tax refund in circumstances where there has been a change of trustee; and the rights between retiring and new trustees. The case also considers when assets vest in a new trustee. Again the matter is fact specific. However, the decision is a useful resource that also contains helpful examples and reference to other decided cases on the matters raised.
- Commissioner of Inland Revenue v Robertson  NZHC 31
- Ford, Trading Trusts and Creditor’s Rights (1981) 13 Melb U L Rev 89
- Trustee Act 1956