In this article we discuss a range of issues to assist you in your business of being a trustee, including:
Payment to a trustee on retirement
Caution should be exercised where a trustee is offered a payment connected with its retirement from office. This issue could be relevant in the context of a successor fund transfer (SFT) where consideration flows between parties or where a commercial trustee accepts a retirement fee.
The Crimes Acts in Victoria and New South Wales, and their statutory equivalents in Queensland and Western Australia, generally prohibit:
- the giving by any person and the receiving by a trustee of consideration as an inducement for substituted appointment, and
- the gift or receipt of a secret commission in return for advice given with respect to the decision to appoint a certain person as trustee. This prohibition is not limited to payments made to trustees. It essentially renders the gift or receipt of a payment to any person a crime when made with the ultimate purpose of influencing the advice given by the payee to another where the advice concerns the decision of the person advised (such as the trustee) to appoint the payer as the new trustee,
unless, in some circumstances, authorised by the trust or the beneficiaries of the trust.
These provisions have not been tested in case law, nor is there any relevant commentary available. As such, it is unknown the manner in which these criminal sanctions would apply, if at all, in the context of a SFT.
However, given the uncertainty associated with the interpretation of these prohibitions and the fact that the penalties involve substantial jail terms, caution should be exercised.
Delegation
Under traditional trust law, a trustee has a duty to act personally. Strictly, trustees are not allowed to delegate their discretions or duties unless the governing rules enable them to do so. SIS does not preclude delegation—indeed SIS seems to acknowledge that a trustee need not perform all of its functions itself.
If the trustee is a company, the directors may delegate any of their powers pursuant to the Corporations Act, unless the company's constitution provides otherwise.
Where directors delegate a power, they are responsible for the exercise of the power by the delegate as if the directors themselves had exercised the power.
Clearly, given all the legal requirements that apply, the trustee’s decision to delegate is a serious one and determining to whom to delegate and the terms of that delegation should not be taken lightly. From a practical compliance perspective, a best practice model would suggest that the directors of a trustee company who delegate their power should ensure that:
- the governing rules of the fund permit the delegation
- the delegation is strictly in accordance with the governing rules
- the terms of any delegation are duly voted and minuted by directors when authorising the delegation
- delegates are reliable and competent
- there is reason to believe that the delegate will act within the terms of the delegation
- they continue to monitor the terms of the delegation and the acts of the delegate, and
- compliance and procedures manuals are in place when delegating to employees and/or committees.
The same principles apply whether the trustee directors are delegating internally to individuals, a committee or externally.
Ratification
In recent times, case law has suggested that in order for a trustee to ratify a decision (that is, approve a decision after it has been made by another), the trustee must:
- have all the material that was before the ‘delegate’
- be aware of and consider the merits of the issue, and
- authorise and accept the decision of a delegate as its own.
If delegations are properly in place, it should not be necessary to effect a ratification. As a consequence of the unwieldy burden imposed by the requirements of ratification, it is imperative for a trustee to ensure that appropriate delegations are properly put in place. Ratification really should only be necessary in circumstances where the decision maker was not properly authorised to make the decision.
More information
For information regarding possible implications for your business, contact a member of the Financial Services team.