Lending to Trustees and Managers of unit trust – what could go wrong?
Published: 23 Nov 2015
Article first published by Butterworths Journal of International Banking and Financial Law, in November 2015
Just when you thought the transaction was going to be straightforward, you are told that one of the borrowers is a manager of a unit trust governed by the laws of an offshore jurisdiction. The manager says the trustee need not be a party to the transaction and insists that liability should be limited to trust property (to which it does not have title). With completion just days away, where do you start?
Promoters of investment funds often consider common law unit trusts to be attractive structures due to the flexibility they provide. The terms of a trust and the trustee’s powers are not constrained by corporate law requirements including those relating to maintenance of capital and distributable profits. Trusts may be tailored to effectively achieve the objectives of the promoter and the investors.
The aim of this article is to highlight some fundamental considerations for lenders when lending to trustees or managers of common law unit trusts. Many of the principles also apply when a lender is considering loaning funds to trustees of family trusts (whether discretionary trusts or otherwise), charitable trusts and non-charitable purpose trusts.