While a trustee holds assets in the trust for the benefit of the beneficiaries in accordance with the trust deed, they have the right to be indemnified from any such assets. This means that the trustee can use the assets of the trust for that purpose prior to distributing it to any beneficiaries.

If a trustee company is placed into liquidation, the trustee’s right of indemnity still remains intact and is considered an asset in liquidation.

Recent cases indicate that even where a trust deed includes a provision that automatically removes a corporate trustee upon the appointment of an insolvency practitioner to the trustee, this does not remove the indemnity that the practitioner has against the assets of the trust for any liabilities incurred by the former trustee on behalf the trust.

A new trustee that is appointed should be aware of this indemnity and make provision for liabilities incurred by the former trustee prior to dealing with the assets of the trust. Liquidators of corporate trustees are now more frequently seeking court orders for a judicial sale of assets or appointment of a Receiver and Manager with power of sale to both protect and dispose of trust assets to meet the liabilities that were incurred by the former trustee.

If you require any further information in regards to the above article, please do not hesitate to contact The Quinn Group on (02) 9223 9166 or submit an online enquiry.

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