New Zealand's financial markets participants will be monitoring the path of the Trusts Bill that was introduced to Parliament on Tuesday 1 August. The proposed legislation will impact on existing and new trusts established for use in both retail and wholesale banking and capital markets transactions.
Purpose of the Bill and key changes
The new statute will replace the out-dated Trustee Act 1956 and the Perpetuities Act 1964. The reforms are intended to clarify trusts law and to make it more accessible to all New Zealanders, given the widespread use of family and other trusts in New Zealand. However, its scope goes well beyond family trusts and it applies to trusts used in a broad range of financial markets transactions.
Some key changes in the Trusts Bill, compared to the current statute, are to:
- identify mandatory and default trustee duties,
- specify requirements for managing trust information and disclosing it to beneficiaries,
- restrict trustees' indemnity and exemption clauses,
- allow the removal and appointment of trustees without having to go to court, and
- state rules for the termination and variation of trusts at the request of beneficiaries.
Application to financial markets trust structures
The Trusts Bill applies to all express trusts governed by New Zealand law. This includes 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. Any court will also be able to deem the new statute to apply to any non-express trust - including resulting trusts or constructive trusts – where "necessary or appropriate".
The statute will also have retrospective effect when it is introduced, which is currently anticipated to occur later this year.
Limited exceptions apply for 'specified commercial trusts', as noted below. In addition, certain provisions of the Bill, such as the default duties, can be expressly modified or excluded by the trust instrument. Accordingly, financial markets participants will want to investigate whether appropriate amendments are required - and whether they are permitted - to existing trust deeds, and will need to factor the reforms into any proposed new transactions.
Exceptions for 'specified commercial trusts'
The Trusts Bill provides that certain limited provisions will not apply to legacy 'specified commercial trusts', and may be contracted out of in respect of future trusts.
The term 'specified commercial trusts' includes qualifying:
- commercial / trading trusts,
- wholesale investment trusts (including securitisation trusts), and
- security trusts.
In our view, this should apply to the majority of trusts used in financing transactions. However, unless the trust instrument expressly contracts out of the new law (to the extent permitted), the statute will largely apply to these specified commercial trusts. In some cases, this will alter the contractual arrangements that would typically apply in such trust-based funding arrangements.
There will be an opportunity to submit on the Trusts Bill after it has been considered by the Select Committee following the General Election.
Please contact us if you would like assistance in understanding how the Trusts Bill may impact on your existing or proposed funding transactions, or if you would like help with your submissions.
A copy of the Trusts Bill is available here.
The progress of the Bill can be tracked on the Parliamentary website here.
If you would like to talk to us further about the Trusts Bill and what it means for your business, please contact one of our team.
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.