Appointors (or sisters) doing it for themselves **

Last week's post considered the ability of a trustee in bankruptcy to exercise the powers of an appointor or principal of a family trust who is bankrupt as their personal property.

A related issue that has been the subject of many years of debate is whether the holder of an appointor role can exercise it so as to appoint themselves.

For many years, the case of Re Skeats' Settlement (1889) 42 Ch D 522 has been seen as the leading decision, and it confirmed that an appointor could not appoint themselves as trustee. In particular the case held that '...the universal rule is that a man should not be judge in his own case; that he should not decide that he is the best possible person, and say that he ought to be the trustee'.

This blanket prohibition has however been iterated over the years and, subject always to the provisions of the relevant trust deed, the position now appears to be that the trustee appointment power is a species of special ‘fiduciary power’ that must be exercised for the benefit of objects of the trust.

This means that an appointor may appoint themselves (or a company they control) as trustee of a trust, as long as it is not for fraudulent purposes and permitted under the deed.

An appointor choosing to appoint themselves as trustee will however only by permitted in ‘exceptional circumstances’, where the court is assured that the trusts will be executed in the interests of the beneficiaries.

The decision in Australian Conservation Services v Liladel Holdings [2017] ACTSC 162, provides a concise summary of the rules in this area.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, 'Sisters are doin' it for themselves' is a song from 1985 by the band the Eurythmics, listen hear (sic) -

Trustees in bankruptcy making plans for appointors (or Nigel) **

Last week's post considered the ability of an attorney to exercise the powers of the donor as an appointor or principal of a family trust.

A key related question is whether a trustee in bankruptcy can act on behalf of a bankrupt for any principal or appointor role held by a bankrupt under a family trust.

As with incapacity (as mentioned last week), generally a well crafted trust deed will expressly address the issue and include a clause along the following lines -

'If the principal suffers the loss of lawful capacity through the committing an ‘act of bankruptcy’, then the principal is the financial attorney of the principal under a valid enduring power of attorney.'

The property of a bankrupt which is available for distribution to creditors includes ‘the capacity to exercise, and to take proceedings for exercising, all such powers in, over or in respect of property as might have been exercised by the bankrupt for his own benefit…’ (see section 116(1)(b) of the Bankruptcy Act).

However, it has been held that the right of a bankrupt to exercise a power of appointment under a discretionary trust is not property of the bankrupt (Re Burton; ex parte Wily v Burton (1994) 126 ALR 557 and Lewis v Condon; Condon v Lewis [2013] NSWCA 204).

Further, the decision in Dwyer v Ross (1992) 34 FCR 463 suggests that a trustee in bankruptcy cannot compel the trustee of a trust to exercise the trustee’s discretion in favour of a bankrupt beneficiary. To do so could be construed as a breach of the trustee’s duty to the solvent beneficiaries of the trust. It would be against the interests of the beneficiaries as a whole to exercise the power in that way.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, ‘Making Plans for Nigel’ is another song by the band XTC, from 1979, listen hear (sic) –