A recent NSW Supreme Court case serves as a useful reminder that seemingly innocuous benefits provided as part of a change of trustee or transfer of trust assets might require court or beneficiary approval under State criminal legislation.
The NSW Supreme Court applied a broad approach to the interpretation of “benefit” under section 249E of the Crimes Act in the matter of BT funds Management Limited (ACN 002 916 458) as trustee for the Retirement Wrap Superannuation fund [2022] NSWSC 401 (the BTFM Case). Section 249E “makes it a crime for a trustee to receive or to solicit a benefit from a person as an inducement or reward for the appointment of any other person to be a person entrusted with the property without the consent of either each person beneficially entitled to the property or of the Supreme Court.” In NSW, a person who breaches this provision is liable to imprisonment for 7 years. There are similar provisions in Queensland, Victoria and Western Australia.
The BTFM Case involved a Successor funds Transfer (SFT) of the Retirement Wrap Superannuation fund. As part of the SFT, BT funds Management (Trustee) sought to negotiate particular benefits from prospective transferees. It was intended that these benefits would ultimately be passed on to the members of the fund, otherwise the Trustee would have been indemnified out of the assets of the fund. To avoid breaching section 249E, the Trustee applied for consent orders to allow the solicitation and giving of benefits contemplated by the proposed SFT.
The Trustee proposed to solicit 3 types of benefits from the transferees:
- the Trustee’s costs or losses associated with the SFT (e.g. due diligence processes, technology and data costs, cost of organising communications with members of a fund)
- costs or other losses by members and any reduction in the value of the assets of the fund (e.g. as a result of taxation costs, asset transition costs, etc.)
- an indemnity for the Trustee for claims that it would otherwise be entitled to be indemnified out of the assets of the fund and warranties.
The NSW Supreme Court found that the purpose of the section was to prevent a trustee form being persuaded by the prospect of personal gain in exercising its power to appoint a substitute trustee. In granting consent to the Trustee to solicit the 3 types of benefits the court stated that it will normally find it appropriate to grant consent where the conduct is motivated by the best interests of the beneficiaries and where it is evident that the intended conduct does not provide an inducement to act other than the best interests of the beneficiaries.
The case raises the prospect of having to obtain court or beneficiary consent for a fairly typical benefit. Indemnities and warranties from the transferee trustee are a reasonably standard benefit provided in successor fund deeds and deeds of retirement and appointment of trustees. Where that is the only benefit sought it is not typical to seek court approval. Going forward careful consideration should be given to whether what is being sought is a benefit and whether the benefit is sought or given as an inducement or reward.
