Trust structures will often involve trustees holding shares in companies; those shares forming part of the trust fund held by the trustees for the benefit of the trust and the beneficiaries as a whole….
Trust structures will often involve trustees holding shares in companies; those shares forming part of the trust fund held by the trustees for the benefit of the trust and the beneficiaries as a whole.
On the basis that trustees have decided to invest in those companies, and for the purposes of this article, you can assume that the directors of the companies have the professionalism, skills and experience to manage the companies properly and for the benefit of the trustees as shareholders of the company.
Does this mean that the trustees can simply let the directors get on with their job and not oversee and intervene in the directors’ management? No, it doesn’t.
What if there is an anti-Bartlett clause in the trust deed which purports to exempt trustees from any obligation to monitor and interfere in the running of an underlying company?
Below ARE a number of key points to be considered by trustees that hold investments in companies, whether or not they have the benefit of an anti-Bartlett clause:-
- A trustee is unlikely to be in breach of trust unless the actions of the company’s management would have been a breach of trust if undertaken by the trustee itself, for example investment loss would not be sufficient unless it was loss that no reasonably prudent trustee would have incurred.
- The question is: what was the duty of a prudent trustee as the holder of the shares in the company?
- This will depend upon all the circumstances and in particular the type of company that the trustee holds shares in. For example, the duty of trustees to take an interest in transactions may be greater in respect of an investment company (where trustees are expected to have some level of expertise) in comparison to a trading company.
- If loss has occurred and those first lines of defence fail, the trustee will be required to rely on an anti-Bartlett clause if they have the benefit of one.
- However, the existence of an anti-Bartlett clause should not cause trustees to simply turn a blind eye. There can be problems in relying on these clauses.
- Trustees need to consider the relationship between anti-Bartlett clauses and their separate duty to invest the trust fund prudently. If a trustee has determined that it does not need to monitor an underlying company at all due to the existence of an anti-Bartlett clause, that may give rise to an assertion that an investment in that company is not a suitable investment for the trust.
- Anti-Bartlett clauses often exclude a trustee’s responsibilities to monitor and interfere in the running of the company if they have no knowledge of any wrongdoing. Trustees may be tempted to try and remain uninformed about the company to take advantage of this clause. This of course can lead to many obvious problems for trustees regarding keeping beneficiaries up to date and ensuring they can comply with their own due diligence obligations.
- Even if a trustee has the benefit of a widely drafted anti-Bartlett clause, a court may find circumstances where they consider there is a residual obligation to interfere because although the clause may mean they have no obligation to interfere, they do as shareholder have the power to as a member of the company.
Could the trustee as shareholder really afford not to interfere where circumstances arose that no reasonable trustee could lawfully refrain from exercising its powers as a shareholder?
DQ would like to provide credit to Wilberforce Chambers in respect of this article as the article has been written following DQ’s attendance at the Wilberforce Trust Litigation Conference 2019 at which the speakers provided valuable insights into the current state of the law in this area.