By Alden Ho - 21 Jun 2018
It's no secret that New Zealanders love trusts. At its
simplest, a trust is a legal relationship where someone (the
settlor) gives property to another (the trustee) to look after it
and use if for the benefit of another person (the
beneficiary).
The relationship creates legal obligations on the trustee. As a
trust is not a separate legal entity, and trustees are personally
liable for the trust's debts, it has become popular to appoint
companies as trustees.
In addition to limited liability, the additional benefits of a
corporate trustee are that there is a more visible separation of
the trust's assets and personal assets and simpler succession and
control of the trust via the appointment of directors.
However, the use of the corporate personality also comes with an
additional layer of legal obligations under the Companies Act which
applies in the same way that it would to all companies.
Complications may arise especially if the corporate trustee becomes
insolvent.
A trustee is personally liable for all liabilities incurred in
performing the trust including debts to third parties unless
liability has been contractually limited to trust assets. If a
liquidator is appointed, the liquidator may look to the directors
for payment of those debts pursuant to their director's duties
under the Companies Act.
If the company was removed as a trustee before or after
liquidation, the liquidator is also able to claim against the
assets of the trust via its right of indemnity under the Trustee
Act so long as the debt was incurred in performing the trust.
It is therefore important for directors of corporate trustees to
understand their obligations under the Companies and Trustee
Act.
Contacts
Alden Ho