When might the court remove a trustee?

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2 min read

The claimant company (LCF), acting by its administrators, sought an order for the removal of the defendant company (GST) as a trustee and for the replacement of GST by LCF's joint administrators or by another trustee as the court might think fit.

LCF’s Administrators had discovered suspicious transactions involving a small number of connected people, including LCF’s managing director, which had led to the loss of roughly £20 million of bondholders' money. GST was advised that it was inappropriate for it to remain as security trustee as GST’s close connections with LCF gave rise to a conflict of interest.

Though in these circumstances the power to remove a trustee under Section 41 Trustee Act 1925 was not available to LCF/the Administrators, the court had an inherent jurisdiction to remove the trustee.

Should the trustee be removed?

The court would never remove a trustee lightly. The role of security trustee had been created to persuade bondholders that an investment in LCF's bonds offered limited risk. 

The court held that GST's board had been too slow to recognise the conflict of interest and undertakings had been offered far too late. The circumstances behind LCF's administration gave rise to grave concern and the confidence of the bondholders had to be maintained. The taint of GST's connections with LCF was hard to remove if GST remained as trustee. GST was removed as trustee with immediate effect.

Should the Administrators be appointed as trustee?

The Administrators argued that the administration and trustee roles were effectively the same. However the court held that it was not in a position to determine that question, and it would be wrong to merge the role of security trustee with the role of administrator without further evidence.

The administrators were ordered to lodge further evidence and the court would appoint a new security trustee after consideration of that evidence.

London Capital & Finance Plc (In Administration) v Global Security Trustees Ltd (2019)

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