In Representation of A Ltd as trustee of the B Trust,(1) the trustee of a Jersey discretionary trust sought the court's blessing under Article 51 of the Trusts (Jersey) Law 1984 for its "momentous decision" to procure the sale of trust property comprising minority interests in seven companies holding commercial land in Germany. The trust's interest was held through a company (I Limited) that was wholly owned by the trust, such that the decision to sell was that of the directors of the company.
The trustee had become aware that one of the beneficiaries of the trust had been convicted in the English courts of value added tax fraud. The trustee was the subject of a 'no consent' letter from the Jersey Financial Crimes Unit. The underlying companies felt that they would have difficulty re-financing, which was shortly to become necessary, given the ultimate beneficial interest of a convicted criminal. The trustee sought the court's blessing for a decision to sell its minority holding in the underlying companies for €1,368,946, or a figure within 10% of that.
The trustee was not surrendering its discretion to the court, but seeking the court's blessing of the decision. The application came within the second category set out in Re S Settlement(2) – that is, where there is no real doubt as to the nature of the trustees' powers and the trustees have decided how they want to exercise them, but – because the decision is particularly momentous – the trustees wish to obtain the blessing of the court.
On the face of it, whether to accept an offer for the underlying shareholdings could be said to have been a matter for the board of I Limited. In this case, the board comprised two corporate directors which formed part of the trustee's group of companies. I Limited was nothing more than a holding company run and administered by the trustee for the purpose of holding the shares, and the interposition of this company between the trust and the underlying investments would not necessarily have eliminated issues that would have otherwise arisen as to the proper conduct of the trustee. In this case, the trustee had already been threatened by the manager of the underlying companies if it refused an offer for the shares and might arguably have been exposed to action on the part of its beneficiaries.(3) There was support for the trustees seeking Beddoes relief in respect of litigation involving the companies owned by a trust.(4) The reality here was that the trustee was not leaving the management of the affairs of I Limited to independent directors, and it was therefore appropriate to seek the assistance of the court and for the court to give that assistance.
The court was therefore satisfied in relation to each of the questions formulated in Re S. The trustee had found itself in difficult circumstances with commercial deadlines imposed upon it. It had done its best to consult the beneficiaries and its decision was manifestly reasonable. Accordingly, the court gave the decision its blessing.
It is helpful for trustees to know that where they provide directors to a company underlying a trust, they can still obtain the protection of the court where a momentous decision is to be made.
For further information on this topic please contact Steve Meiklejohn at Ogier by telephone (+44 1534 504 000), fax (+44 1534 504 444) or email (email@example.com). The Ogier website can be accessed at www.ogier.com.