A trust deed with a creditor is a formal agreement to deal with debt and can be either voluntary or protected. A voluntary trust deed is an agreement between a debtor and their creditors to repay part, or all of what they owe. The debtor's rights to the things they own are transferred to a trustee who will sell them to pay creditors part of what is owed to them. A voluntary trust deed is not binding on creditors. If creditors agree to the terms of a trust deed, it then becomes protected. A protected trust deed is binding on all creditors and means they can take no further action to pursue the debt or to make the debtor bankrupt, as long as the debtor complies with the terms of the protected trust deed

What this Practice Note covers The aim of this Practice Note is to provide information and practical guidance on English law trust deeds to lawyers advising first time issuers of debt securities. This Practice Note focuses on first time issuers because debt capital markets documentation for subsequent issues tends to follow very closely the documentation which the issuer used for its first issue—the documentation stage of the first issue is therefore the time when an issuer and its advisers have an opportunity to consider the documentation in depth and (within the constraints imposed by accepted debt capital markets practice) to influence the form of the documentation. This Practice Note: • sets out the advantages and disadvantages of using trustees in debt capital markets transactions and the nature of the relationship between an issuer and a trustee, and then • explains the practical aspects of the main provisions usually found in trust deeds for debt capital markets transactions This Practice Note covers trust deeds for issues of both: • unsecured debt securities—these are likely to be

What this checklist covers This checklist outlines the key points that a lawyer advising a first time issuer should check and, if necessary, seek to amend when reviewing an English law trust deed for an issue of debt securities. This checklist covers trust deeds for both secured and unsecured debt securities. This checklist should be read together with Practice Note: Trust deed—first time issuer's guide, which explains: • the advantages and disadvantages of using trustees in debt capital markets transactions and the nature of the relationship between an issuer and a trustee, and • the practical aspects of the main provisions usually found in trust deeds for debt capital markets transactions Although the terms and conditions of the debt securities which are being issued will be set out in an annex to the trust deed, this checklist does not cover terms and conditions—these are covered in Terms and conditions—first time issuer's negotiation checklist and Practice Note: Terms and conditions—first time issuer's guide. This checklist refers to provisions by the titles, and in the

Breach of trust Beneficiaries may consider proceedings either to restore a trust fund or obtain compensation on the basis that the trustees have exceeded their authority or failed to exercise their duty of care. Before taking those proceedings, those instructed to take action should consider whether: • the act complained of is a breach of trust (or breach of fiduciary duty) • there is a quantifiable loss and a readily identifiable link from the breach to the loss • there is a commercial prospect of recovery from the trustee(s) • the claim is outside the limitation period • there is an exclusion clause that enables the trustee to escape liability • the trustee is likely to be granted relief • the beneficiary is guilty of acquiescence If the first four can be answered positively and the latter three negatively, there may be a justifiable claim. Trustees' duty of care Trustees must act with such reasonable care and skill as is necessary in the circumstances. In addition the Trustee Act 2000 (TrA 2000) imposes an additional

It is not uncommon for trustees to be faced with difficulties in the execution of their trusts. They are entitled to ask the court for help in such cases. They are also entitled to the protection of the court in exercising their duties under a trust. When asked by a trustee to exercise its jurisdiction in a matter affecting the trust, the court will be solely concerned with what is in the best interests of the trust. It is not primarily concerned with the rights of adversarial parties. Trustees who seeks a determination of the court of first instance are protected as long as they do what has been decided but if they appeal that decision and lose, they risk an almost certain costs order against them. There is a distinction of note when the trustee is considering an application to court. If the trustee with a discretion applies to the court and surrenders that discretion, the court can act unfettered and determine an action in such a way as is in the best interests

In general the trust instrument will provide for the appointment of replacement trustees (see Practice Note: Trustees—appointment of trustees) but this is not always the case. In some circumstances the court may have to intervene. Appointment by the court Where it is found to be inexpedient, difficult or impracticable to appoint trustees without the assistance of the court, an application may be made to appoint a trustee in substitution for or in addition to an existing one. The statutory power to appoint new trustees is very widely drawn and effectively enables the court to remove or discharge a trustee by appointing someone in their place. A court will not normally discharge a trustee unless another is being appointed in their place. The court will only look to the preservation of the estate and the best interests of the beneficiaries when reaching a decision. See Practice Note: Trust disputes—trustees' removal under section 41 of the Trustee Act 1925. Appointment by the Court of Protection Lack of capacity does not terminate a trusteeship

In some circumstances a beneficiary will want to recover a specific asset. Tracing as a remedy will be the preferred option as the claimant seeks to establish a proprietary right to the asset. It is important to make the distinction between tracing the asset that was previously owned and tracing a substitute property that now represents that which was previously owned. The most obvious example of this is seeking to establish title to a house that was bought from the proceeds of the sale of a house that was a trust asset. The claimant's case in the first instance will simply be to prove that the property was theirs but in the second case it will not be so straightforward as it is a situation where equity has been employed. Although the term tracing is generally used and will continue to be used here, it is often more explanatory to refer to the former as 'following' and the latter as 'tracing'. The leading case, helpfully explains this: 'The process… involves both tracing and following. These are both

A distinction should be drawn between disclosure by the trustees under trust law, due to the rights of beneficiaries to receive information and ‘non-party’ disclosure by trustees during litigation, whether voluntarily or as a result of a court order. Trustees have a duty to account to beneficiaries, as set out by Millet LJ in Armitage v Nurse, so they must be cooperative in dealing with legitimate requests for information. Exercising their duty of disclosure appropriately is part of the trustees' fiduciary duties. Trustees asked for disclosure should consider whether there is a good reason to refuse. Beneficiaries do not have a proprietary right to inspect trust documents but rather, the right to demand the disclosure of documents and information based on the trustees’ duty of accountability. The decision of Dawson Damer v Taylor Wessing LLP may enable a beneficiary to obtain information they cannot obtain under trust law if it can be framed as a request to their personal data. In Dawson Damer the request was pursuant to the now repealed Data Protection Act 1998, which has been replaced by

It is a fact of life that beneficiaries and trustees fall out. Often this is due to misunderstandings but occasionally beneficiaries may consider proceedings either to restore a trust fund or obtain compensation on the basis that the trustees have exceeded their authority or failed to exercise their duty of care. Before taking those proceedings, those instructed to take action should consider a number of points, namely whether: • the act complained of is a breach of trust (or breach of fiduciary duty) • there is a quantifiable loss and a readily identifiable link from the breach to the loss • there is a commercial prospect of recovery from the trustee(s) • the claim is outside the limitation period • there is an exclusion clause that enables the trustee to escape liability • is the trustee likely to be granted relief • is the beneficiary guilty of acquiescence If the first four can be answered positively and the latter three negatively, there may be a justifiable claim. Breach of trust v breach of fiduciary duty There

This Practice Note is concerned with those breaches of duty by a trustee which consist solely of negligent acts or omissions, and which do not involve either the misapplication of trust funds or the breach of fiduciary duties, for example the duty which trustees have, to prefer the beneficiaries’ interests to their own interests. Liability for the misapplication of trust funds and for breaches of fiduciary duties are treated differently from liability for negligent breach of trust, and are considered in other Practice Notes. Before turning to negligent breach, however, it is necessary to touch on the distinctions between this and other types of breach. In brief, a trustee’s liability for negligent breach of trust is a liability to make equitable compensation, which is akin to a professional’s liability in negligence. It is therefore to be distinguished from trustees’ liability to reimburse a trust where they have misapplied the assets by, for example, paying them to the wrong persons or paying them in circumstances

Trustees involved in litigation will be keen to ensure their costs and any costs awarded against them are met from the trust fund. Under section 31(1) of the Trustee Act 2000, a trustee is entitled to be reimbursed from the trust fund or may pay out of the trust fund expenses properly incurred when acting on behalf of the trust. CPR 19.7A states that a claim may be brought by or against trustees, executors or administrators in that capacity without adding as parties the beneficiaries and that any order made is binding on the beneficiaries unless the court orders otherwise. A trustee sues or is sued in their own name. Trustees’ authority to incur costs General rule The general rule is that a trustee who is party to litigation in their capacity as trustee is entitled to their costs out of the trust fund on the indemnity basis to the extent that those costs cannot be recovered from other parties to the litigation. Such costs are incurred in the execution of the trust and the trustee’s usual right

Trust litigation has been classified as being of three types: • a dispute as to the trusts on which trustees hold the subject matter of the trust • a dispute with one or more of the beneficiaries as to the propriety of any action that the trustees have taken or omitted to take or may or may not take in the future • a dispute with persons, otherwise than in the capacity of beneficiaries, in respect of rights and liabilities assumed by the trustees as such in the course of administration of the trust The first form of dispute may well be friendly in that assistance is required to determine the construction of an instrument. Equally, it can be hostile, as when the validity of the trust itself is challenged. The dividing line between friendly and hostile may be difficult to determine. The second form of dispute is the more recognisable beneficiary dispute in such a situation where there is an alleged breach of trust. The last one is likely to occur where