Collins Judith: Trustee (Public Trust) Amendment Bill — First Reading Second Reading In Committee Third ReadingText is incorporated into the Bound VolumeCollins Judith: Trustee (Public Trust) Amendment Bill — First Reading Second Reading In Committee Third Reading[Sitting date: 08 May 2013. Volume:689;Page:9810. Text is incorporated into the Bound Volume.]Hon JUDITH COLLINS (Minister of Justice): I moveThat the Trustee (Public Trust) Amendment Bill be now read a first time. This bill clarifies the process for appointing a replacement securities trustee. Section 46 of the Trustee Act allows the High Court to appoint Public Trust as replacement trustee for any trustee who wishes to retire or resign. This rule was first enacted in 1899 to ensure that family trusts or estates did not fail for lack of a trustee. Trusts have significantly changed since then. Trusts have become increasingly popular for commercial uses including raising money for the public. Some of the rules applying to traditional trusts are out of place when applied to corporate trusts. A trustee of a failing or failed finance company trust can ask the court to appoint Public Trust as replacement trustee. This was not envisaged when the rule in section 46 was enacted. To date this rule has never been used to appoint Public Trust as a securities trustee. If it is used in this way securities trustees will be able to walk awayfrom their responsibilities by asking the court to have Public Trust appointed in their place.There may be very good reasons for appointing Public Trust to stop a family trust from failing but we need a different approach for appointing a replacement trustee for a finance company. That approach is coming in the Financial Markets Conduct Bill which is currently before Parliament but it will not begin to come into force until 2014 and we need change now. The law puts Public Trust on an unequal and unfair playing field. It is unequal because the existing trustee is not required to contact other trustees in the market and try to negotiate terms with them to act as a replacement trustee. It is unfair because the current legislation does not ensure that Public Trust’s reasonable fees and expenses will be met. Although the court has discretion to award costs to Public Trust it is unclear whether and how this discretion will be exercised. This is not a hypothetical risk; it is real and it is happening now.Perpetual Trust is trustee for the failed finance company Capital + Merchant Finance. Perpetual Trust has applied to the High Court to have Public Trust appointed as replacement trustee. Public Trust is unlikely to recover its expenses from the company. This bill does not seek to affect those court proceedings. Public Trust will have to wear the cost if it is appointed. The bill will remove the risk of the case setting a precedent. Public Trust could be appointed as replacement trustee for many more failed finance companies. There are 60 finance companies currently in receivership liquidation or moratorium. It would take only a few appointments of the same scale as Capital + Merchant Finance for Public Trust to incur more than $1 million of unanticipated and unfunded costs. Furthermore Public Trust may incur more than a significant financial burden. Being a trustee for failed finance companies may impact on Public Trust’s reputation and brand. It will put Public Trust at a competitive disadvantage. Its current business activities will need to be reprioritised. Public Trust is required by law to operate as a competitive business. To place on it the burden of acting as a replacement trustee for securities trustees puts it at an unfair disadvantage in the competitive market.This bill makes an urgent amendment to the Trustee Act. The amendment will clarify the process for appointing replacement securities trustees. Securities trustees are those who supervise offers of securities to the public under the Securities Act 1978 and are licensed by the Financial Markets Authority under the Securities Trustees and Statutory Supervisors Act 2011. Instead of allowing a securities trustee to merely resign or retire and ask the court to appoint Public Trust as a replacement this bill requires more effort on behalf of the retiring trustee. A retiring securities trustee must make reasonable endeavours to appoint a replacement trustee. Reasonable endeavours include offering to pay the replacement trustee’s reasonable fees and expenses. If it is impractical or difficult to appoint a replacement trustee the court may assist. Public Trust may then be appointed as a replacement trustee.The requirement on the retiring trustee does not end there. If the trust cannot cover Public Trust’s reasonable fees and expenses the retiring trustee must do so itself. These changes place an appropriate responsibility on the retiring securities trustee. The trustee of last resort should really be the last resort. The retiring trustee should demonstrate that it has made reasonable endeavours to find an alternative trustee and Public Trust should not have to incur the costs without being compensated for them. The retiring trustee should ensure that Public Trust’s reasonable costs are met in taking on this role. If the trust cannot do so it is not fair that one licensed trustee that just happens to be owned by the State should have to underwrite the risk that private sector securities trustees take on when they become trustees of finance companies and for which they have been compensated. This amendment is needed and it is needed now to protect Public Trustfrom the significant burdens of being required to act as a replacement trustee for retiring securities trustees. I commend this bill to the House.