Trustee crimes of appointment, transfer and indemnity?

The Supreme Court of New South Wales issued a judgement in Application of MLC Investments Limited [2022] NSWSC 1541 which is relevant to the issue of whether superannuation trustees are at risk of committing offences under the Crimes Act 1900 (NSW) where it receives benefits in the course of changing trustee or giving effect to a successor fund transfer.

The decision by Stevenson J concerns the change in trustee of several managed investment schemes, and interprets section 249E of the Crimes Act 1900 which makes it a criminal offence for a trustee to give, solicit, or receive a benefit as an inducement or reward for the appointment of any person as trustee without the consent of all beneficiaries or the Supreme Court. In this case, the retiring trustee benefited from indemnities to cover the costs of the change which protected the beneficiaries of the various schemes from bearing the burden of such costs.

Background

The case follows the ruling of Ball J in BT Funds Management Limited as trustee for Retirement Wrap Superannuation Fund [2022] NSWSC 401, where the Court held that section 249E may have been enlivened by the indemnities that formed part of the successor fund transfer deal and provided consent, protecting the trustee from possible criminal responsibility.

It also comes after the Queensland Supreme Court held that the similar offences under Queensland and Victorian law were not enlivened by a proposed successor fund transfer in H.E.S.T. Australia Ltd in its capacity as trustee for HESTA Superannuation Fund) v Attorney-General (Qld); Mercy Super Pty Ltd v Attorney-General (Qld) [2022] QSC 221. In this case, the Court held that the transfer of the assets and beneficiaries to another fund via successor fund transfer was not an appointment for the purposes of the relevant offences under Victorian and Queensland law.

Reasoning

In interpreting the mens rea aspect of section 249E, Stevenson J reasoned that “a corrupt purpose is not a necessary element of the statutory offence.” In reaching this conclusion, Stevenson J considered that “the legislature had chosen not to use the word “corruptly” in section 249E” and had included the caveat that consent of the Attorney General was required in order to prosecute. Stevenson J held that this “suggests that section 249E was intended to operate broadly and capture conduct which might not necessarily merit prosecution.” In other words, the statutory offence under section 249E could apply in NSW even where there is no improper or corrupt intention, such as a successor fund transfer or change in trustee.

Accordingly, the Court proceeded to consider whether consent should be given. In doing so, Stevenson J followed the decision of BT Funds Management in applying the test of whether “the appointment of the new trustee was in the best interests of beneficiaries” or that the proposed conduct “did not provide an inducement to the transfer to act other than in the best interests of the beneficiaries.” In concluding that consent should be given, weight was placed on the reasonableness of the extent of the indemnities provided, so as not to be a reward that creates any inducement or interest that conflicts with the interests of beneficiaries.

Implications

Some caution is required in applying the reasoning of Stevenson J in to a successor fund transfer, as the facts clearly involve the appointment of a new trustee to the existing funds. This can be distinguished from many successor fund transfers, which involve the transfer of trust assets and beneficial interests to another trust (but no appointment of a new trustee). The decision in HESTA provides a precedent considering the issue of whether such a transfer would correctly be characterised an appointment of a new trustee. In many typical successor fund transfers, there is no appointment of a new trustee.

Superannuation trustees should remain cautious in relation to any conduct that may constitute the appointment of a new trustee as part of successor fund transfer negotiations, particularly where there is a connection to NSW or Western Australia. In some scenarios, application to the Court for consent and orders protecting from criminal prosecution may still be prudent.

Jonathan Steffanoni, Managing Partner - QMV Legal

If your trustee office needs further clarification or assistance with mergers and SFTs, please contact QMV Legal at sayhi@qmvsolutions.com or 03 9620 0707.

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