The rights of creditors against trustees and trust funds

A project to examine the rules governing the liability of trustees and trust funds when trustees enter into contracts.

When trustees enter into contracts they do so personally, incurring personal contractual obligations and, unless the contract says otherwise, personal liability to the other contracting party. A trustee has the right to be indemnified from the trust fund for obligations properly incurred and the contracting party will have a derivative claim against the trust fund based on this right.

No such right exists where the obligation was not properly incurred or the trustee is indebted to the trust fund. In these circumstances, the trustee will have to meet any liability out of their own pocket (even if the trust fund is sufficient to meet it). In the event of the trustee's insolvency, the contracting party will be left without a remedy.

In considering how, if at all, this situation could be improved the Commission will have to balance the position of creditors with the competing interests of beneficiaries who benefit from the current protection given to the trust fund.

This project will commence when the Commission has completed its work on Capital and Income in Trusts: Classification and Apportionment.

For more information, contact the property and trust law team or go to the team page.

NOTE - We are happy to provide information about our projects. However, we cannot give legal advice or deal with individual cases. Nor do we help with student assignments.