UK Trustees Should Check Protections As Funds Devalue During Coronavirus

• Published date: 11 May 2020
• Author: Ms Janette Cattell and Sophie Le Breton
• Subject Matter: Finance and Banking, Coronavirus (COVID-19), Financial Services, Fund Management/ REITs, Financing
• Law Firm: Withers LLP

The standard position for a trustee is that they may be personally liable to the trust's beneficiaries in the event that the trust's funds devalue (subject to any exoneration provisions in the trust deed). If the trustees have insufficient funds to meet their liabilities, they may also be sued directly by creditors of the trust, unless the trustees have limited their liability in contracts with third parties to the value of the assets comprised in the trust fund.

Trust protections are also important here as trustees only have a right of indemnity from the trust fund in respect of claims against them to the extent that they have acted in accordance with their trustee duties, including their overriding duty to act responsibly and in the best interests of the beneficiaries. A third party claimant can only claim against the trust assets (by way of right of subrogation) if the claim is one in relation to which the trustee could have properly sought redress from the trust assets.

So what should trustees pay particular attention to?

• Firstly whether the trust deed contains any exoneration, exemption or exclusion clauses, and what these clauses specify and permit. These clauses cannot be changed at this stage to offer more protection, but a full knowledge and understanding of their terms is important in the...