The Risks of Acting for/as Trustee Companies

The trustee has been quoted to be the ‘archetype of a fiduciary’.^[1] The trustee and beneficiary relationship is the most traditional fiduciary relationship that exists. As a fiduciary, the trustee undertakes or agrees to act for or on behalf of or in the interests of a beneficiary in the exercise of a power or discretion, which will affect the interests of that beneficiary in a legal or practical sense.^[2]

One of the corporate trustee’s most fundamental duties is to ensure that it is aware of the terms of the trust instrument (commonly a deed) creating the trust and of the obligations under the Trustee Act 1936 (SA). Often when we have acted for a trustee or against a trustee, the trustee has not had a copy of the trust deed, nor were they aware of its terms.

Trustee Duties

The trustee must keep the original and stamped copy of the trust deed, including all amendments to that deed. A trustee must also, amongst other things, keep written records of any decisions made about the trust’s property and ensure that any distributions made out of the trust are recorded through a resolution of the trust. In the event advice is sought regarding distributions, they must have a copy of the trust instrument to ensure that they are aware of what distributions can be made pursuant to the trust deed.

However, above and beyond the terms of the trust instrument, trustees have a broader duty to maintain documents in relation to the administration of the trust.^[3] This is where many trustees fail in their duties and is the precursor to an application to remove the trustee.

Statutory Duty to Keep Records

Section 84B(1) of the Trustee Act 1936 (SA) (the Act) prescribes generally that:

“a trustee shall keep such records relating to the administration of the trust property as may be prescribed.”^[4]

For the purposes of section 84B, Regulation 5 of the Trustee Regulations 2011 (SA) (the Regulations) provides an extensive and onerous list of what records a trustee must keep with respect to the administration of the trust property. This list includes keeping (amongst other things):

• each document authorising the trustee to act as trustee;
• all letters sent and received by the trustee;
• a copy of each statutory declaration and each affidavit made in the course of the administration of the trust;
• each deed, agreement or other instrument varying distribution of the trust property or a stamped duplicate of any such deed, agreement or instrument;
• all returns made as to any form of duty, charge or tax imposed on the trust by the Commonwealth or any State or Territory of the Commonwealth;
• all written instructions for the sale or transfer of any trust property or any asset which forms or formed part of the trust property and any independent valuations obtained in relation to those assets;
• all minutes of the proceedings of all meetings relating to administration of the trust at which the trustee was or was entitled to be present;
• a record of any insurance cover in respect of the assets which form or formed part of the trust property;
• a record of all reviews of investments;
• other records that would enable the receipt and disposition of trust property to be conveniently and properly audited, including the following:
  • a register of securities received and disposed of;
  • a property register;
  • a register of all investments of income and capital funds;
  • a cash receipt book recording;
  • a cash payments book;
  • each ADI statement and passbook issued in relation to trust ADI accounts;
  • trust statements, prepared not less than annually; and
• importantly, all financial documents.

You Must Know Who is Doing What

A trustee ought to clarify with its legal and financial advisers who is responsible for maintaining each document because pursuant to section 17 of the Act, a trustee may delegate its duties and powers to any person in South Australia.^[5] However, it is the trustee’s ultimate duty to ensure all of those documents set out in Regulation 5 of the Regulations are maintained.

Why is This Important?

Beneficiaries have a right of access to documents that are kept by the trustee and may examine and make copies of those records.^[6] In circumstances that a beneficiary does exercise its rights to examine the records of the trust and there are either no records being kept or those records that are being maintained amount to misconduct, a beneficiary may apply to the Court to appoint an inspector. An inspector is appointed to investigate the administration of the trust.^[7]

In the event that an inspector is appointed, he/she has broad powers that enable him/her to investigate and demand information relevant to the administration of the trust from any person.^[8]

In Oxer v Astec Paints Australia Pty Ltd [2005] SASC 192, Oxer sought, amongst other things, an order that the Court appoint an inspector to investigate the administration of the Unit Trust due to allegations that the director of the Defendant had not acted impartially between the unit holders. The Court said that the appointment of an inspector under section 84C of the Act to investigate the affairs of the trust will be expeditious and economical to achieving the objective of obtaining information and documents necessary to see whether there is a proper basis for some claim for substantive relief against a trustee.^[9]

Conclusion

In light of the above, it is important that:

1. The original of the trust instrument and its variations are maintained by the trustee and copies are provided to its legal and financial advisers.
2. The trustee is aware of the records that must be kept.
3. The trustee instructs his/her legal and financial advisers of which documents they must maintain.

In circumstances where trustees have been asked to provide documents pursuant to section 84B of the Act, there are some documents that do not need to be provided to beneficiaries as they may be confidential.

It is recommended that a trustee and/or beneficiary seeks legal advice in relation to any request or application that is made regarding the inspection of records relating to the trust to avoid a possible application by the beneficiaries to remove you as trustee.