SMP Trustees Ltd, Re

A trustee may exercise a broadly drafted power to amend a trust instrument where the amendment is not materially prejudicial to the relevant class of beneficiaries. Such a power may be used to confer authority needed to respond to changed commercial circumstances, including an orderly realisation of trust property. The trustee must form the required opinion, but the opinion must be rational and properly directed to the interests of the beneficiary class. The court may bless a momentous and proper exercise of the power. The statutory power under section 57 of the Trustee Act 1925 is confined to management or administration of trust property and need not be used where the trust instrument itself supplies an effective amendment power.

Lifemark SA had issued bonds secured on a portfolio of United States life insurance policies. Because the underlying business had failed, an immediate judicial liquidation in Luxembourg was expected to produce a substantially lower recovery than a controlled liquidation involving continued premium funding and an orderly sale of the policies.

SMP Trustees Ltd was trustee under 25 substantially similar trust deeds. It lacked express power to enter the proposed liquidation protocol, while bondholder meetings had produced inconsistent results because some issue meetings were inquorate. SMP sought directions and authorisation concerning amendments to the trust deeds and entry into the protocol. The urgent issue was whether the amendments could properly be made under clause 13.1.

1. Relief granted. Pursuant to clause 13.1 of the trust deeds, SMP was authorised to amend them to permit entry into a protocol with the Lifemark liquidators, to make consequential changes to the payment waterfall, to provide for pro-rated payments, to aggregate voting and quorum requirements, and to replace the deeds with one composite deed. The amendments were subject to the specified consent of the swap counterparty where required.
2. Section 57. Section 57 of the Trustee Act 1925 applies where a transaction in the management or administration of trust property is expedient but the trustee lacks the necessary power. The words relating to management or administration are confined to managerial supervision and control on behalf of beneficiaries: Re Downshire Settled Estates [1953] Ch 218. Since clause 13.1 supplied an effective amendment power, reliance on section 57 was unnecessary and inapplicable.
3. Construction and exercise of clause 13.1. The power to agree to any modification that was, in the trustee’s opinion, not materially prejudicial to the bondholders was very broadly drafted. The word agree did not prevent the trustee from initiating the amendment where the purpose of the power was to preserve the trust’s fundamental purposes in changed commercial circumstances. The amendments were not formal, minor or technical, but SMP reasonably considered them beneficial, rather than materially prejudicial, to the relevant class.
4. Commercial flexibility and court blessing. The power should not be unduly fettered so as to prevent changes required by commercial exigencies: Re Courage Group’s Pension Scheme [1987] 1 WLR 495 at 505–506. The proposed exercise was lawful and proper. SMP retained its discretion and sought the court’s blessing because the amendments were momentous and would need to be explained to the Luxembourg court, within the jurisdiction identified in Public Trustee v Cooper [2001] WTLR 901.
5. Questions concerning the true interpretation of “Bondholders” and “Bond”, and the second and third resolutions, were left for later determination.