Trustee removal may be best dispute outcome

trustee removal

Arguments over member rollouts can justify the removal of a trustee if they are shown to be acting against the best interests of the fund.

SMSFs with trustees not acting in the best interests of their fund in the course of a member dispute might consider their removal and relieving the trustee of their duties, an SMSF legal expert has said.

Highlighting fund disputes sparked by member rollouts, Cooper Grace Ward associate Alexander Hawkins said some funds experiencing issues between members might be best served by having a problematic trustee removed, especially if the trustee was obviously acting in their own best interests, rather than that of the fund.

“It’s something that we have seen recently when there is a breakdown in the relationship between members. [S]ome want to bail and put [their money] back into an industry fund, [leading to] an argument about the preparation of figures [and] whether the member balance statement is correct,” Hawkins said last week during a Cooper Grace Ward webinar.

“What do you do if one trustee refuses to let you roll out?”

He pointed out a trustee could be removed from their role if their refusal to allow a member’s decision to leave the fund did not fulfil their obligation to act in the best interests of the fund, but warned against removing a trustee without sufficient cause.

“Think about the prudence of removing a trustee when maybe it’s not necessary to do so.  [But] if there [are] going to be ongoing issues here [and] if they’ve clearly breached their duties, then yes, they could be best removed,” he said.

The timely removal of a trustee could also save disputes between members from escalating and ultimately save the trustee themselves from unnecessary costs, he noted.

“When a trustee doesn’t act in accordance with [their] duties [and] a dispute arises, [and] this dispute morphs into a proper fight with solicitors or even in court, then trustees find themselves in a precarious position,” he said.

“They could be personally liable for any loss they’ve caused to the fund and, depending on the breach or depending on their conduct, they may not be eligible to be indemnified for their costs out of the assets of the fund.”

He also said future disputes over death benefit payment decisions could be prevented if trustees were to rethink having multi-member SMSFs.

In May, SuperConcepts technical education executive manager Graeme Colley said trustees and advisers had struggled to understand the COVID-19 legislative changes relating to SMSFs, particularly in the area of early release of funds.

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