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Commissioner appeal in Newmarket Trustees allowed

The Court of Appeal has overturned the High Court decision in CIR v Newmarket Trustees Limited (2011) 25 NZTC¶20-030 (the liquidations judgment).  See Commissioner of Inland Revenue v Newmarket Trustee Limited [2012] NZCA 351


Newmarket Trustees is a corporate trustee that acts for a number of trusts.  Newmarket Trustees is insolvent due to unmet tax liabilities in respect of one if the many trusts of which it is a trustee.  Despite the company’s insolvency, which was not in dispute, the High Court took a pragmatic approach and elected to exercise its residual discretion under s 241(4) of the Companies Act and dismissed the application.  Factors taken into consideration by the High Court included the fact that no assets would be realised on the liquidation, there were no other creditors and the costs to the other trusts for which Newmarket Trustees acted if it were necessary for each trust to appoint a new trustee.

Court of Appeal approach

The Court of Appeal disagreed with the approach of the High Court, finding that the factors relied upon did not provide “any sufficiently compelling ground of principle or justice to overcome the general policy of the Companies Act with regard to insolvent companies” (see para 66).

The Court of Appeal took as its starting point, the recognition that the
Court has an overriding duty to esnrue that trusts are properly managed. Further noting that:

  • an insolvent trustee company, like a bankrupt trustee, will normally be considered unfit to be a trustee
  • the appointment or retention of a bankrupt trustee or an insolvent trustee company will not normally be in the best interests of the beneficiaries
  • a fundamental proposition of the law of trusts is that a trustee must be fit to discharge its functions or be liable to be discharged from office
  • wider public interests require the deterrence and removal of insolvent trustees

The Court of Appeal also considered the position in England and Australia and also referred to the fifth paper in the Review of the Law of Trusts, which considers the propriety of trustees servies being offered through trustee companies.

This decision, follows the earlier  Court of Appeal decision in CIR  v Chester Trustees Limited [2003] 1 NZLR 395.

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