Bill to protect Public Trust introduced

Justice Minister Judith Collins today introduced to Parliament a bill to shield the Public Trust from wearing the costs of having to step in to replace the trustees of failed finance companies.

Ms Collins says an out-dated ‘last resort’ rule in the Trustee Act (1956) means the trustees of failed finance companies can apply to the High Court to have the Public Trust replace them, without Public Trust’s agreement.

“We are changing the law because of the risk a potential precedent could be set by a case due to be heard in the High Court early next month,” Ms Collins says.

“It’s simply not acceptable for trustees who wish to retire or resign, to pass their responsibilities to the Public Trust, and the taxpayer, with huge and unrecoverable costs.”

Perpetual Trust, which is the current trustee of the failed finance company Capital + Merchant Finance, has asked the High Court to appoint Public Trust as replacement trustee, because Perpetual has a conflict of interest.

There are sixty failed finance companies currently in receivership, liquidation, or moratorium. Perpetual is trustee of 22 of those companies, including Capital + Merchant.

“This law change does not apply to the proceedings or outcome of the Capital + Merchant case, as that would be unfair,” Ms Collins says.

“However, if that case set a precedent, Public Trust could find itself lumbered with significant unexpected costs and a hugely increased workload.”

The Trustee (Public Trust) Amendment Bill makes it clear the retiring trustee must first try to appoint a replacement trustee before seeking Public Trust’s appointment.

If Public Trust is to be trustee of last resort, the retiring trustee must cover Public Trust for its reasonable fees and expenses, if they cannot be paid otherwise.

Ms Collins says the amendment provides an interim solution until the Financial Markets Conduct Bill, which is currently before Parliament, is enacted and comes into force.

Under this Bill, the Financial Markets Authority will take over the role of determining the replacement trustee for investment products regulated by the Bill.