In particular, the common instruction from clients “to avoid family fights, all decisions should be unanimous” may need to be the subject of careful discussion, rather than being followed without question.
2.7 Structuring the corporate trustee – common features of “shelf” companies
In the majority of cases encountered in practice in this area, the company which acts as trustee of a family discretionary trust will be unsuitable for use by the next generation without significant amendments to its constitution.
That company will typically be a “shelf” company acquired prior to the 1998 Corporations Law amendments and its constitution will comprise the old “Table A” Articles of Association.
The company will probably have been uncontroversial and perfectly serviceable for Dad and Mum. However, it will be unlikely to meet the challenges of providing equal representation and appropriate protection of individual interests of three adult children.
It should be borne in mind that the critical decision-making organ for the exercise of the trust fund’s discretions and powers is the board of directors of the trustee company. A board comprising two parents whose interests are essentially similar (or, if not, whose conduct will effectively be mandated by orders of the Family Court if necessary), is one thing. However, a board comprising three siblings with their own lives, partners and emotional baggage can be another thing altogether.
Some relevant aspects of the average shelf company constitution which may need to be borne in mind are as follows:
- · the holding of a share in the company does not entitle the holder to become or remain a director or to appoint someone to represent his/her interests on the board;
- · voting at directors meetings is based on the numbers attending the meeting and has nothing to do with the number of shares which a particular director holds or represents;
- · a director can be removed by a majority vote at a members meeting;
- · upon a casual vacancy arising (e.g. as a result of death, incapacity or absence of a director) the remaining director(s) appoint the replacement;
- · although the legal personal representatives of a deceased shareholder will be recognised as the persons who are entitled to receive any dividends on shares held by the deceased and may also have the right to vote on the deceased’s share(s) during the administration of the deceased’s estate, the actual transmission of the deceased’s shares to a beneficiary often requires the consent of the board;