Receiver appointed to a trust with no trustee

Booth and Magniness v Rahal relates to a successful application for the appointment of a receiver to the First Trust (the Trust). The Trust’s original trustee was First Trust Limited (the Company). The background is set out by Gault J at [3] to [9] as follows:

[3] On 28 April 2017, the Company was incorporated. The respondents, Mr and Mrs Rahal, were its directors and shareholders. The sole purpose of the Company was to be a corporate trustee. Further, the constitution of the Company states that all incomings and outgoings of the Company must be accounted for as the incomings and outgoings of the trust, that the Company was to have no financial dealings of its own and that the Company would not operate a bank account other than as a trustee for the trust.

[4] On 1 May 2017, the Trust was settled by trust deed and the Company was named as the sole trustee. The settlors and appointers of new trustees were Mr and Mrs Rahal.

[5] On 26 May 2017, the Company became the registered proprietor of the property at 609-611 Great South Road, Papatoetoe, Auckland described as unique identifier NA82B/25 (the Property).

[6] On 29 March 2022, under a deed of retirement and appointment of new trustees the Company was replaced as trustee of the Trust by Athena 2021  Ltd (Athena).  The directors and shareholders of Athena were Moheet Rahal and Roshni Rahal, the respondents’ children. They no longer reside in New Zealand.

[7] Despite being removed as trustee, the Company remains the registered proprietor of the Property. After retiring as trustee, the Company continued to enter obligations on behalf of the Trust, notably including, but not limited to:

(a) entering into a loan agreement on behalf of the Trust with ASB Bank Limited dated 14 April 2022;

(b) obtaining insurance for property held under the name of the Company on behalf of the Trust; and

(c) entering lease agreements as the landlord, as trustee of the Trust.

[8] Further, the Company’s signed financial statements for the Trust for the year ended 31 March 2023 record the Company as the sole trustee of the Trust. IRD was not notified of the change in trustees.

[9] On 20 March 2024, Athena was removed from the Companies Register. However, no replacement trustee was appointed. This left the Trust without a trustee.

The Company and / or the Trust are subject to a number of claims including preferential claims ($18,233), secured claims ($2,844,684) and unsecured claims ($986,775). The only asset available to meet the obligations incurred by the Company in its capacity as a trustee of the Trust is the property still registered in the name of the former trustee. This property has a current ratable valuation of $7,050,000.

A receiver can be appointed to a trust pursuant to section 138 of the Trusts Act 2019 or the High Court’s inherent jurisdiction. Such appointments are generally a matter of last resort when there is no other legal or equitable options. Importantly as noted at [17]:

“The approach under the inherent jurisdiction does not set the required threshold for appointment under s 138. In context, “reasonably necessary” in s 138 means something more than expedient or desirable, falling closer to required or essential to achieve a particular purpose, but not that it is needed as a last resort.“

Gault J’s reasoning is set out at [18] to [20] as follows:

[18] The Trust has continued to operate without a trustee. The Company had the sole purpose of being a corporate trustee, but it is no longer trustee of the Trust.    The liquidators are unable to take steps in relation to the Property to have recourse to the Trust’s assets for the benefit of the creditors of the Company and the beneficiaries of the Trust, despite the Company being the registered proprietor of the Property. There is no trustee to deal with trust matters such as assets, debts and obligations of the former trustees, including the Company. The Company is entitled to be indemnified from Trust assets in respect of debts and obligations incurred as trustee of the Trust.

[19] In these circumstances, and in the absence of proper steps by those with power of appointment to appoint a new trustee or trustees, I am satisfied that it is reasonably necessary, and just and equitable, to appoint a receiver to administer the Trust under s 138 of the Trusts Act. I am also satisfied that it is appropriate to appoint the liquidators of the Company as receivers. The liquidators of the Company are qualified interested persons and are best placed to administer the Trust efficiently and avoid conflict. Appointment will enable the liquidators to have recourse to the Property (and any other Trust assets) for the benefit of the creditors of the Company and beneficiaries of the Trust …

[20] The matters to be determined under s 138(4) are appropriately addressed in the terms and conditions of the receivership sought in the originating application except that provision should be made to determine the duration of the receivership.

Detailed orders were made regarding the conduct of the receivership.

The Company’s actions were not treated as disentitling the Company from its rights of indemnity as a trustee of the Trust.

Also see Ryan v Lobb and Vicki Ammundsen Ammundsen’s webinar Trust Series 2025 – Coporate Trustees. For more information on Trust Series 2025 – Corporate Trustees listen here:

References

• Booth and Magniness v Rahal [2025] NZHC 613
• Rea v Omana Ranch Ltd [2012] NZHC 2639 at [10]
• Armani v Armani [2021] NZHC 3145 at [64]
• Armani v Armani [2022] NZHC 579
• Lockhart Trustee Services No 56 Ltd v Ryan (as Trustee of Lothbury Trust) [2020] NZHC 1823 at [34]
• Re Cameron [2021] NZHC 2495 at [11]