When might the court replace a trustee? (London Capital & Finance plc (in administration) v Global Security Trustees Ltd)

When might the court replace a trustee? (London Capital & Finance plc (in administration) v Global Security Trustees Ltd)  

In this case, the court held that it would exercise its inherent jurisdiction to remove a trustee in circumstances where the beneficiaries were creditors facing very substantial losses following the collapse of London Capital & Finance, and it was clear to the court on the facts that there was a very grave concern that those creditors did not have confidence in the existing trustee appointed to represent their interests. The decision addresses both the court’s statutory power to remove a trustee under section 41 of the Trustee Act 1925 (TA 1925) and its inherent jurisdiction to do so.

n an insolvency scenario, the court confirmed that the best interests of the creditors were, if not paramount, a very material consideration that the court should weigh in its decision-making. The extent of creditor losses here, the questionable conduct of several parties and the existence of conflicts of interest, among other matters, all contributed to the conclusion that it was unacceptable for the existing trustee to remain in office. Written by Brett Israel, partner in the restructuring and insolvency group, Marriott Harrison LLP.

London Capital & Finance Plc v Global Security Trustees Ltd [2019] EWHC 3339 (Ch) (10 December 2019)

What are the practical implications of this case?

It is not uncommon in financial services cases for an insolvency practitioner to come across a trust structure where a trustee has been appointed to represent the interests of beneficiaries who are likely to be creditors. This case provides some guidance to insolvency practitioners on the circumstances in which the court may be prepared to exercise its discretion to order the removal of the trustee, as well as on the appointment of a replacement.

It is clear that where the trustee in office does not inspire confidence in the beneficiaries regarding the protection of their interests, it will be appropriate for the trustee to be removed on the ground that the best interests of those beneficiaries is a fundamental consideration which will weigh heavily in the balancing of interests assessment. However, the fact that the beneficiaries had fallen out with the trustee was unlikely, of itself, to be a sufficient determinant.

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About the author:

Zahra started working as a paralegal at Lexis Nexis in Banking and Insolvency teams in April 2019. Zahra graduated with a 2.1 honours in a BA French and Spanish, completed the GDL at BPP University and is seeking some experience before commencing the LPC. She has undertaken voluntary work for law firms in London, Argentina and Colombia.