Advice practitioners working with an SMSF where a trustee or director has given their resignation need to be certain this has taken place correctly, particularly when carried out by an attorney, as many trust deeds will have specific conditions around these actions, a technical expert has warned.
Heffron technical services manager Leigh Mansell said the resignation of an SMSF trustee, or director of a corporate trustee, could not take place if that person had lost capacity prior to resigning, and similar actions by an attorney acting for them may not be applicable as well.
“One of the things to be mindful of is if you don’t have capacity, then you can’t actually resign,” Mansell said during a recent Heffron technical update webinar.
“Often what we find with people is that if they can’t resign because they have lost capacity, their attorney will often try to resign for them.
“That can’t actually happen unless the trustee or director has granted or delegated those duties to the attorney.”
She said this would mean the incapacitated trustee or director was still in the fund and advisers needed to check under what arrangements the resignation took place.
“Be very careful whenever you are dealing with somebody who has purported to have resigned themselves or their attorney has resigned on their behalf because quite often that is ineffective and that might mean later on an appointment is ineffective,” she said.
“It might also mean future decisions are also ineffective and there have been numerous cases over the last couple of years were a resignation was found not to be effective and that meant virtually every decision made since that point in time was invalid moving forward.”
She said if a trustee or director cannot resign due to incapacity, other trustees or directors – including those holding that role under a power of attorney – could remove them from the fund, but needed to do so according to its governing rules.
“If we’re dealing with a company, we go to the constitution and see who’s got the power to remove directors. It may be other directors or shareholders and this is where the attorney can actually exercise the individual’s shareholder voting rights,” she noted.
“The critical thing is you need to go to the constitution or if it was an individual trustee, you need to go to the governing rules of the fund to see who’s got the power to remove them if they’re not actually able to resign themselves.”
