Summary of recommendations

Chapter 16 – Trustee’s indemnity, corporate trustees and insolvency

Standing of the Official Assignee to challenge a trust

R45 The Insolvency Act 2006 should be amended to provide that the Official Assignee has standing to apply to the court to challenge the validity of a trust regardless of whether the bankrupt could have done so prior to the bankruptcy.

Appointment of a receiver for trustsTop

R46 The new Trusts Act should:
(1) Recognise the court’s jurisdiction to appoint a receiver of a trust, which could manage the trust property, on application or on its own motion.
(2) Provide that applications for appointment of a receiver of a trust would be heard only in the High Court.
(3) Specify the grounds on which a receiver may be appointed; who may act as a receiver; the powers and duties of a receiver; priorities of those involved; a process for terminating the receivership; and provision for the receiver’s fees to be paid out of the trust property.

Trustee’s right to indemnityTop

R47 The new Trusts Act should include a provision setting out the following principles:
(1) A trustee assumes personal liability for expenses and liabilities incurred by the trustee when acting on behalf of the trust.
(2) A trustee is entitled to be reimbursed from the trust property, or may pay out of the trust property, expenses and liabilities reasonably incurred by the trustee when acting on behalf of the trust.
(3) A trustee’s indemnity in (2) cannot be limited or excluded by the terms of the trust and applies regardless of any contrary intention expressed in the terms of the trust.
(4) Notwithstanding (3), the terms of the trust may rank the order in which the trust property may be used to meet the trustee’s expenses through the trustee’s indemnity; this ranking may be set aside on application to court by a trustee, creditor or beneficiary, if the court considers it appropriate, for example on the basis of fraud.
(5) The indemnity in (2) is available to a former trustee in respect of actions taken by the trustee when acting as trustee.

Creditors dealing with trusteesTop

R48 The new Trusts Act should provide that:
(1) A creditor to whom a trustee has incurred liability (or the Official Assignee) can rely on the trustee’s indemnity to claim against the trust property to satisfy the liability, even if the trustee is not entitled to be fully indemnified.
(2) This section would only apply where the creditor has given value and the trust property has received a benefit from the transaction between the trustee and the creditor.
(3) This section would only apply where the creditor has acted in good faith and would not apply if the creditor had knowledge of the circumstances that impaired the trustee’s indemnity at the time the transaction was entered into.
(4) The creditor would take priority over beneficiaries under this section, subject to a decision of the court.
(5) The creditor would only be able to rely on the trustee’s indemnity to the extent of the value that they have given.