Contents

Chapter 6
Appointment and removal of trustees

Numbers of trustees

Proposal
P27 New legislation should:
(1) allow trustees to be removed without being replaced provided that this is in the best interests of the trust, taking account of the suitability of remaining trustee(s), and other relevant circumstances;
(2) leave minimum number provisions to the trust deed, rather than including a statutory default;
(3) provide that a sole trustee may be appointed at the outset and that if a sole trustee is removed or dies in office, he or she must be replaced, and may be replaced with more than one replacement trustee unless the trust deed provides otherwise; and
(4) prevent the circumventing of the rules on minimum numbers of trustees contained in a trust deed by providing that as a matter of interpretation, a trust deed which requires two or more trustees will be taken to mean two or more persons exercising independent judgement. For the avoidance of doubt, the legislation could provide that any two natural persons will be considered to be exercising independent judgement.
Please give us your views on this proposal.

Current law

6.71The Trustee Act does not impose a minimum number of trustees. This is left to the trust deed. However, there are some provisions which combine to create ongoing minimum number requirements if more than one trustee was appointed in the initial appointment:

6.72In effect this means that there is a default minimum requirement of two trustees on an ongoing basis unless the initial appointment was a single trustee, or if one of the statutory trustee corporations is appointed.

6.73The court does not have a specific statutory power to remove a trustee without appointing a new one, although arguably this power is within the court’s inherent supervisory jurisdiction.

Issues

6.74The minimum number rules are not explicit and the provisions are not well understood. We have been advised that there is a widespread misconception that the trustee corporation exception applies to any corporate trustee, though the section only applies to a statutory trustee corporation. The issue is whether there should be a statutory default minimum number of trustees, and if so, how this should be applied. A related question is whether a trustee should be able to be removed without being replaced.

Options for reform

6.75The options considered were:

(a)imposing statutory minimum number rules and allow a trustee to be removed without being replaced provided that these requirements are met; or
(b)allowing a trustee to be removed without being replaced provided that any minimum number rules in the trust deed are met.

Discussion

6.76The options above were not presented in the Fourth Issues Paper. However, submitters were invited to respond to a question on the court’s power to remove trustees without replacement. Submitters expressed qualified support for allowing the court to remove a trustee without appointing a replacement, but some noted that it should be subject to the trust deed and to the court’s assessment of the suitability of remaining trustees.

6.77The preferred approach would allow for the removal of a trustee without replacement, provided that this is consistent with the trust deed and in the best interests of the trust. It would enable the replacement of trustees where necessary but will not require a removed trustee to be replaced in every instance. Determining whether or not to appoint a trustee in replacement should be done on a discretionary basis subject to an assessment of the suitability of remaining trustee(s) and the best interests of the trust. This decision would also be subject to the overall duty of good faith to be imposed on those exercising the powers of removal and appointment.

6.78The new provision would be a statutory default and could be overridden by a contrary intention expressed in the trust deed. New legislation should not contain a statutory default minimum number rule for the initial appointment or subsequent appointments. We consider that this is unnecessary and would simply complicate existing arrangements that have only one trustee. It should continue to be possible for a settlor to appoint a sole trustee at the time that a trust is established. If a sole trustee is removed it should be possible to appoint more than one trustee in replacement.

6.79We also propose clarifying that if a settlor provides in the trust deed that there should be two or more trustees on an ongoing basis, this should be interpreted as requiring two persons who are able to exercise independent judgement. Under this approach, appointing two related companies, or a natural person together with a company of which they are a director, would not comply with a requirement that there be a minimum of two trustees. We consider that it would be useful to clarify this point, taking into account the increased prevalence of corporate trustees.