Where a fund with a limited recourse borrowing arrangement (LRBA) in place elects to change its trustee, the outgoing and incoming trustees need to be mindful of their obligations under superannuation law and the LRBA documents including the Custody Deed, the Loan Agreement or Equitable Charge. This article provides some tips and guidance to trustees to help them comply with their duties.Kate Hocking, Maddocks Lawyers
There are a number of reasons why a fund may change its trustee including:
Before a fund changes its trustee, you should review the terms of the LRBA's custody, loan and security documents, to see if they contemplate a change of the fund's trustee. This applies to both related party and bank LRBAs. In each case, the outgoing trustee(s) must provide advance notice to the lender and custodian.
If the LRBA was not established using Cleardocs, you should ensure that the change of trustee does not trigger any default provisions under the relevant loan agreement and security documents. In the case of a bank lending LRBA, these loan and security documents will have been provided by the relevant bank and will most likely determine a change of trustee — without the bank's prior consent — to be a default.
The Cleardocs Custody Deed, Loan Agreement and Equitable Charge documents contain interpretation provisions to the effect that a reference to any legal person in the document includes the legal personal representatives, successors and assigns of that person. As a result:
To perfect the necessary changes to the LRBA arrangements, which would otherwise only take effect in equity, it is advisable and good practice to arrange for the custodian, lender, outgoing trustee and incoming trustee to sign a short deed prepared by a lawyer. That deed should confirm:
In Victoria, the new Land Victoria Mortgage form no longer requires the debtor's details to be included. As a result, if the new Land Victoria form was used to register the mortgage, Land Victoria will not need to be notified of the change of trustee. If the mortgage was registered in any other state or territory, you should seek your own independent advice on this issue.
The deed should be prepared in addition to the change of trustee document which is executed to record the change of trustee in accordance with the requirements of the fund's deed.
A change of trustee involves one of the following structural changes to the fund:
Regarding the appointment of individual trustees, superannuation law permits the following trustee appointments in place of a member:
Where there is a change of trustee, it is important that the outgoing and incoming trustees do everything required to vest the fund and its assets in the name of the new trustee(s). This includes delivering all books and records to the new trustee(s).
It is important to always follow the change of trustee process set out in the governing rules of the fund. The governing rules are contained in the fund's trust deed.
If the fund has a Cleardocs SMSF deed then:
Cleardocs offers a quick and easy way to change the trustee of your fund by ordering its SMSF Change of Trustee product. Please note that your fund must have a Cleardocs SMSF Deed to use the Cleardocs SMSF Change of Trustee product. If your fund does not have a Cleardocs SMSF deed, you can update the fund's deed first using the Cleardocs Update to SMSF product.
If your fund does not have a Cleardocs SMSF deed and you do not wish to update it using the Cleardocs Update to SMSF product, you should check that the fund's deed has mechanisms to enable a company to act as trustee. If it doesn't contain these mechanisms, you should consider updating the fund's deed either through Cleardocs or by speaking to the fund's lawyer.
If there is a change to the fund's trustee or directors of the corporate trustee, then you must notify the ATO of this change within 28 days of that change by submitting a Change of details for superannuation entities (NAT 3036) form.
You can read earlier articles on a wide range of SMSF topics.
Leigh is a partner in the Maddocks Tax & Revenue team.
Leigh regularly provides advice on:
His advice covers both direct and indirect tax considerations.
Leigh advises Australian and multinational companies, high net worth individuals, accountants and financial advisers on all areas of taxation law.
The legal information and commentary on this site is general only. Documents ordered through Cleardocs affect the user's legal rights and liabilities. To assess their suitability for the user, legal accounting and financial advice must be obtained.
For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of their team.