Claim against Perpetual Trust over Capital + Merchant cleared as court appoints new trustee
A claim by the receiver of failed lender Capital + Merchant Finance against its trustee Perpetual Trust has got the go-ahead after the High Court in Auckland appointed state-owned Public Trust to take over as the trustee of last resort.
Justice Mark Woolford granted Perpetual's application to make the order appointing Public Trust, having filed the claim after KordaMentha's Grant Graham and Brendon Gibson decided to sue the trustee for breaching its duty to Capital + Merchant investors. Perpetual asked to excuse itself, as it had a conflict of interest where it wouldn't be acting in the investors' interests and its own interests at the same time.
Public Trust initially opposed the application, though later relented and sought only to be indemnified by Perpetual against bearing the cost of the case.
The judge turned down Public Trust's application to have Perpetual cover the costs and expenses of its appointment, saying it could potentially be "an enduring financial obligation upon the retiring trustee rather than a simple order for costs".
The case prompted the government to pass legislation earlier this year to prevent the Public Trust from finding itself in a situation as a stop-gap measure before a securities law overhaul recently passed its third reading, empowering the Financial Markets Authority to appoint a replacement trustee from among all the licensed supervisors.
Perpetual was one of two trustees to be singled out by a highly critical 2009 report on the country's failed finance companies by then-Registrar of Companies, Neville Harris, who said they "were slow to detect adverse financial issues developing and they responded too timidly," and questioned trustee diligence and accountability.
That report ultimately led to the inclusion of trustees in the securities law overhaul.