The ACT has expressed its concern that current proposed changes in UK trustee law could increase costs of finance for companies and undermine London’s position as a leading corporate finance centre. It therefore urges exemption for “corporate finance trusts”.
The Law Commission has put forward plans to narrow the scope of exemptions from liability enjoyed by trustees under UK law (CP 171).
The ACT’s concern is on the impact on “corporate finance trustees”. This is in response to proposals to subject restrictions on trustees’ duties and discretions to a “reasonableness” test which may cause uncertainty which would be both unacceptable to the market and make trustees unwilling to take on corporate finance trustees.
Whilst appreciating the motivations of the Law Commission in protecting beneficiaries of settlements and charitable trusts, the ACT maintains that the removal of trustee exemptions is not appropriate in corporate finance trusteeships, including those used in bond issues and in asset and project finance. These trusteeships are vital to the efficient operation of the capital markets as they both allow issuers to deal during the life of the bonds with one focal point rather than numerous, often anonymous, investors (e.g. to propose an amendment to the terms or to discuss a breach of covenant) and also facilitate the influence of debt-holders being brought to bear on the issuer (through the trustee), for example, in the case of a workout. Under UK practice, trustees usually have discretion on various points prior to default whereas non-UK tradition trustees, e.g. New York trustees, are passive until default.
In the opinion of the ACT, beneficiaries of corporate finance trusts already enjoy adequate protection under CA85, s.192 (and other similar provisions incorporated in trusteeships for issues not falling under this section), particularly when it is taken into consideration that the users of capital markets are habitually professional, well advised parties.
The Law Commission proposals suggest that protection for trustees withdrawn by the restriction of trust deed wordings could be substituted by the purchase of indemnity insurance. This may be available for private and charitable trusts, but its availability for corporate finance trusteeships is doubted. In any case, it would inevitably lead to increased costs of and delays in establishing capital markets programmes etc. This would ultimately impact on the attractiveness of London as an issuer jurisdiction.
Accordingly, the ACT has put forward clear representations to the Law Commission that any changes made to trustee exemptions should specifically exclude those relating to corporate finance trusteeships.