The Trusts Act 2019 (the Act) restates and reforms New Zealand's trust laws by setting out core principles and trustees' duties, and providing mechanisms to resolve disputes. Read our toolkit for trustees The Big Picture: New Rules for Trusts for an overview of the Act.
The Act applies to all express trusts governed by New Zealand law, which encompasses trusts used in a broad range of financial transactions, including trading trusts, commercial trusts and security trusts, as well as retail and wholesale investment funds, securitisation trusts, bond trusts and other trusts used in capital markets transactions.
Among other duties and obligations on trustees, the Act specifies mandatory duties, which can't be modified or excluded, and default duties, which can be. There are two schedules to the Act that specify which duties may be modified or excluded.
Many of the provisions that can be contracted out of are fairly innocuous. However, there are some that will alter the contractual arrangements that would typically apply in such trust-based funding arrangements.
With the provisions taking effect on 30 January 2021, it's worth considering in the context of financing transactions whether existing trust deeds should be amended, and how future trust deeds should be drafted, to take into account the new legislation.
Specified commercial trusts
The Act does recognise the use of trust structures in commercial contexts by establishing the concept of a “specified commercial trust".
“Specified commercial trusts" include qualifying:
- commercial/trading trusts,
- wholesale investment trusts (including securitisation trusts), and
- security trusts.
In our view, the majority of trusts we see used in connection with financial transactions will be specified commercial trusts.
Existing specified commercial trusts
The Act automatically dis-applies some of the duties in relation to specified commercial trusts created before 30 January in Schedule 3. For all other duties that can be modified or excluded, this can be done expressly or impliedly by parties.
Given that, and taking into account terms of trust deeds that should impliedly modify or exclude many of the remaining provisions that can be contracted out of, it is our expectation that it will not be necessary to amend the majority of existing specified commercial trusts entered into on industry standard terms. However, if a facility is being re-financed or re-documented, it will be worth amending the trust deed to reflect the exclusions we are seeing for new specified commercial trusts (see below).
New specified commercial trusts
With respect to specified commercial trusts created after 30 January 2021, our expectation is that wholesale exclusion of those provisions that can be modified or excluded will become industry standard. This is consistent with current market practice which is moving towards the development of standard provisions to affect modifications and exclusions. In addition, because the Act specifically prohibits trustees from being indemnified for dishonesty (as well as wilful misconduct) we are also seeing dishonesty being added to the exclusions from indemnities in trust deeds.
For further information, please get in touch with the contacts listed, or your usual Bell Gully adviser.
Disclaimer
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.