Are the individual directors liable for the debts of a corporate trustee?

A trust can be a very good structure for asset protection and using a corporate trustee adds to this protection.

In the event that a corporate trustee incurs a liability in excess of the assets of the trust, the corporate trustee can be placed into administration or liquidation without the directors or shareholders being personally liable.

While the individual directors of the corporate trustee would not usually be liable for the debts incurred by the corporate trustee, there are exceptions where the directors have:

  • Caused the corporate trustee to act outside its powers
  • Signed a personal guarantee or indemnity
  • Been negligent in their duties
  • Allowed the corporate trustee to trade whilst insolvent
  • Committed fraud or misleading or deceptive conduct
  • Breached directors’ duties including contravening the law
  • Not remitted the correct employee PAYG withholding tax or superannuation

The Corporations Act 2001, section 197, also deals with a director’s personal liability and where the corporate trustee is to be indemnified out of the assets of the trust. It should be noted though, that a director will not be liable under this section merely because there are insufficient trust assets out of which the corporate trustee can be indemnified.

If you are a director of a corporate trustee and are concerned about your personal liability, please contact us. It is safer to act early, in the event something has gone wrong.