Advantages of a Corporate TrusteeAPLI SeminarDavid FrancisA & L Goodbody Solicitors 5107367v1
1. INTRODUCTION “The time has come the Walrus said to speak of many things. Of shoes and ships and sealing wax and cabbages and kings.” Alice in Wonderland
2. What are the types of Corporate Trustees? • Principal Employer • Professional trustee company charging a fee. • Specifically Incorporated Trustee Company.
What are the Advantages and Disadvantages of a Corporate Trustee? Some Advantages and Disadvantages of a Corporate Trustee
3.1 Some Advantages • Changing director of a corporate trustee vs an individual trustee. • No need to notify Revenue/Pensions Board. • Power to appoint and remove directors clearer. • Easy execution of deeds.
3.1 Some Advantages (Cont’d) • Limited liability. • Delegation by directors. • Directors and officers insurance cover.
3.2 Some Disadvantages • Additional paperwork. • Accounts. • Exclusion/limitation or indemnity. • Potentially less transparency.
3.2 Some Disadvantages (Cont’d) • Member nominated trustees. • Directors residential address. • Entrenching a particular trustee structure. • Establishing a corporate trustee.
What is the Potential Liability of Directors of a Corporate Trustee? • Position of individual improved. • Exculpatory provisions. • Duties and obligations of directors and individuals. • Directors of a corporate trustee may be personally liable under a number of possible routes.
4.1 Do Directors of a Corporate Trustee owe a Direct Fiduciary duty? • Fiduciary duty owed to the corporate trustee or to beneficiaries? • Wilson v. Lord Bury (1880) S QBD 518. • Bath v. Standard Land  1 LH 681.
4.1 Do Directors of a Corporate Trustee owe a Direct Fiduciary duty? (Cont’d) • Independent direct fiduciary duty to beneficiaries: - Re French Protestant Hospital  Ch 567 - Abbey & Malvern Wells Limited v. Ministry of Local Government  Ch 728
4.1 Do Directors of a Corporate Trustee owe a Direct Fiduciary duty? (Cont’d) • HR v. JAPT  OPLR 123 • Lindsay J. held that: “there is a broad principle… that the directors of a trust company stand in a fiduciary position only to the company itself and not to strangers dealing with the company and not even where the stranger is able to describe himself as a beneficiary of the trust of which the company is a trustee…”.
4.1 Do Directors of a Corporate Trustee owe a Direct Fiduciary duty? (Cont’d) Why do questions of “accessory” liability arise in relation to directors if the direct fiduciary liability route is available?
4.2 Do Directors owe a Direct Duty of Care? • HR v. JAPT  OPLR 123 (1) Duty to act with care and skill on those who elect to act in the interest of others. (2) Separate and personal tortious liability for the acts of the company. • Lindsay J did not accept that directors had a direct duty of care.
4.2 Do Directors owe a Direct Duty of Care? (Cont’d) • Directors liable for company’s actions where special facts. - Williams v. Natural Life Health Foods  1 BCLC 137. - Brochure placed particular emphasis on expertise of the director. • No such special circumstances in HR v. JAPT. • Director had not overstepped the line.
4.3 When will Directors’ be liable under Recipient Liability and Accessory Liability? • Barnes v. Addy (1874) LR 9 Ch APP 244 • Recipient Liability: - Where trust property comes into the hands of a person who can be required to disgorge it. - Constructive knowledge of trust claims.
4.3 When will Directors’ be liable under Recipient Liability and Accessory Liability? (Cont’d) • Accessory Liability: - Liability to beneficiaries where individual involved in breach of trust by trustee. • Royal Brunei Airlines v. Tan  2 AC 378: (a) Existence of Trust (b) Breach of Trust (c) Assistance in the Breach of Trust (d) Dishonesty on the part of the person assisting.
4.3 When will Directors’ be liable under Recipient Liability and Accessory Liability? (Cont’d) • The accessory has to be shown to be dishonest • The corporate trustee does not.
4.4 Do Directors owe an Indirect Fiduciary Duty or Duty of Care? - Dog Leg Claims
4.4 Do Directors owe an Indirect Fiduciary Duty or Duty of Care? - Dog Leg Claims (Cont’d) • HR v. JAPT - Claim by corporate trustee against director was an asset of the scheme - Such asset passed to current trustees
4.4 Do Directors owe an Indirect Fiduciary Duty or Duty of Care? - Dog Leg Claims (Cont’d) • Problems with “Dog Leg Liability”: - Does company have right to sue directors? - Is any such right trust property? • Corporate trustee under-capitalised: - Risk director may be personally liable.
4.4 Do Directors owe an Indirect Fiduciary Duty or Duty of Care? - Dog Leg Claims (Cont’d) • Ignores principle that a beneficiary may sue on behalf of the trust in special circumstances. - Hayim v. Citibank  AG 730. - Parker – Tweedale v. Dunbar Bank plc  Ch12. - Bradstock Trustees Services Ltd v. Nabarro Nathassan  1 WLR 1405.
4.4 Do Directors owe an Indirect Fiduciary Duty or Duty of Care? - Dog Leg Claims (Cont’d) • Royal Brunei Airlines v. Tan  2 AC 378: The beneficiaries could bring an action “in a suitable case where the trustees are unable or unwilling to do so”.
4.5Piercing the Corporate Veil • No one was deceived into thinking the corporate trustee was other than it was: - “an asset-less, income-less corporate entity with no function other than the management and administration of the Scheme”. - No concealment, no “devise or sham or cloak”.
4.6Relevance of Insolvency of the Corporate Trustee • Criminal proceedings for fraudulent trading. • Civil claim for fraudulent or reckless trading. • If successful – personal liability. • Liquidator of insolvent company compelled to report to ODCE on conduct of directors. • Restriction unless director can prove acted honestly and responsibly.
4.6 Relevance of Insolvency of the Corporate Trustee (Cont’d) • Restriction Order: - Prohibits acting as director/secretary unless company meets minimum issued share capital requirements. • Disqualification Order: - Fraud etc – director may be disqualified for 5 years. - Prohibits acting as a director/secretary.
4.7What is the Potential Liability of Directors of a Corporate Trustee under the Pensions Act? If an offence under the Pensions Act is committed by a body corporate and is proved to have been committed: • with the consent or connivance of, • or to be attributable to any neglect on the part of any • person, being a director,.. or other officer of the corporate • trustee,.. • then that person shall (as well as the body corporate) be guilty of an offence and be liable to be proceeded against and punished as if he were guilty of the first-mentioned offence.
4.7What is the Potential Liability of Directors of a Corporate Trustee under the Pensions Act? (Cont’d) Persons found guilty of an offence are normally liable: • On summary conviction to a fine not exceeding €5,000 or to imprisonment for a term not exceeding one year or both. • On conviction on indictment to a fine not exceeding €25,000 or to imprisonment for a term not exceeding two years or both
4.8 Conclusion in relation to Director’s Liability • Position of director probably better. • No automatic personal liability. • However, - Where duty owed to corporate trustee breached, and - Where director acts dishonestly Personal liability may follow.
5. Other Sections of the Pensions Act which may impact on a Corporate Trustee? • Prohibition on acting as a Trustee • Member Nominated Trustees • Whistleblowing • Trustee Training
5.1 Prohibition on Acting as a Trustee The Pensions Act provides that a person shall not act as a trustee where the person: (a) is an undischarged bankrupt, or (b) has made a composition or an arrangement with his creditors and has not discharged same, or (c) has been convicted of an offence involving fraud or dishonesty, or
5.1 Prohibition on Acting as a Trustee (Cont’d) (d)is a person in respect of whom a Declaration under Section 150 of the Companies Act has been made, or (e) is a company and any director is prohibited from so acting.
5.2Member Nominated Trustees • Regulations do not provide for election of directors of a corporate trustee • Alternative Arrangement: - Regulations do not apply to selection. - Would not be “Member Trustees”. - Would not be entitled to remain for statutory term of 6 years.
5.3Whistleblowing: Compulsory and Voluntary Reporting to the Pensions Board • Material Misappropriation/Fraudulent Conversion • Report to the Pensions Board • Protected from liability for any breach of confidentiality or other duty which may necessarily occur.
5.4 Trustee Training • Social Welfare and Pensions Bill 2008 • Compulsory trustee training • All directors of corporate trustee to receive training in relation to: - the Pensions Act and Regulations; - any other law; - the duties and responsibility of trustees; - such other matters as may be prescribed.
Can the Directors of a Corporate Trustee rely on Exclusion Clauses? • Armitage v. Nurse and Others  EWCA (civ) 1279 • To permit a trustee to act dishonestly would derogate from the “irreducible core obligations” of honesty and good faith. • Assist director in respect of Dog Leg claim.
7. Conclusion • May not suit every scheme. • Greater protection. • Liable for breach of trust to which an accessory if dishonest. • Assume in a similar position to an individual trustee. • Exclusion clauses to apply to directors.
“The time has come the Walrus said to speak of many things. Of shoes and ships and sealing wax and cabbages and kings.” Alice in Wonderland