The Trustee (Public Trust) Amendment Act 2013 was passed under urgency last month to provide an interim solution to a potential floodgate of expenses for Public Trust.
The Amendment Act clarifies the process for appointing replacement trustees of trusts governing certain regulated financial products, referred to in the Amendment Act as "securities trustees".
Previously, section 46 of the Trustee Act 1956 allowed the High Court to appoint Public Trust as the replacement trustee for any trustee who wishes to retire or resign. This provision was enacted to ensure that family trusts or estates did not fail for lack of a trustee. However, following a recent application to the High Court, the Government became concerned that securities trustees of a failing or failed finance company may seek to take advantage of this provision, allowing them to walk away from their responsibilities by asking the court to have Public Trust appointed in their place.
Under the new amendment to the Trustee Act, instead of allowing a securities trustee to merely resign or retire and ask the court to appoint Public Trust as a replacement, a retiring securities trustee must make reasonable endeavours to appoint a replacement trustee. Reasonable endeavours include undertaking to indemnify the proposed replacement trustee for its reasonable fees and expenses and offering adequate security for the indemnity. If it is impractical or difficult to appoint a replacement trustee, Public Trust may then be appointed as a replacement trustee by the court, but only if the retiring trustee indemnifies Public Trust for its reasonable fees and expenses incurred in undertaking the appointment and provides security for the indemnity.
The Financial Markets Conduct Bill is intended to provide a longer term solution to this problem by bringing the replacement trustee process for supervision of regulated products under the oversight of the Financial Markets Authority and allows Public Trust to be treated more fairly as being only one among a group of potential replacement trustees.