See Part 1 for a more detailed background to this case.

Background to trustee removal proceedings

New South Wales Trustee and Guardian (NSWTG) was appointed as executor of the deceased’s estate. NSWTG engaged a chartered accountant and registered liquidator, Mr Heesh, to administer and wind up the SMSF and act as the SMSF trustee’s (Gainer Associates Pty Ltd – referred to as Gainer) sole director.

Mr Bone commenced proceedings seeking to remove Gainer as the SMSF’s corporate trustee, to be replaced with NSWTG. NSWTG was not amenable to becoming the replacement SMSF trustee. Orders were also sought prohibiting Gainer from being indemnified from the assets of the SMSF for its fees and charges and also prohibiting the remuneration of Mr Heesh.

Mr Bone claimed that Mr Heesh was not independent having been appointed as the sole director of Gainer by NSWTG as the executor of the deceased’s estate, and that, as Mr Heesh was not the deceased’s legal personal representative (i.e. Mr Heesh was not the executor of the deceased’s estate), his appointment as sole director of the SMSF corporate trustee was in breach of section 17A of the Superannuation Industry (Supervision) Act 1993 (SIS Act) and therefore also required removal under the governing rules of the SMSF.

The Court interpreted that Mr Bone's overarching concern in making the application for trustee removal by the Court appeared to be that Gainer should make the SMSF death benefits distribution 100% to himself as the partner of the deceased member. The three reasons for this argument failing are set out in our previous publication – Part 2.

Mr Bone had delayed in filing his pleadings for the SMSF corporate trustee removal application with no reason provided for the delay. The removal proceedings had not progressed despite numerous appearances before the Court. There had been repeated adjournments at the request of Mr Bone and repeated non-compliance with Court orders by him. The summons, and draft amended summons, did not particularise the allegations against Gainer; the case against it was not known at the time. Mr Bone had not sought injunctive relief in the removal proceedings in relation to the death benefit payment and had failed to progress those proceedings.

Gainer given permission to defend proceedings but not file cross-claim

Trustees who are sued for breach of trust must first seek judicial advice about whether it is proper to defend proceedings (see Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand & Anor [2008] HCA 42). Failure to do so can result in an order that the trustee is prohibited for seeking indemnity for legal costs from the trust fund (see Wooster v Morris [2013] VSC 594).

Mr Bone argued that advice should not be given on the basis that interests of the trust as a whole was not significantly affected by the identity of the trustee and the trust fund of the SMSF should not be exposed to the costs of a trustee seeking to stay in office.

The Court found that a trustee will be less agnostic to the identity of the trustee where Mr Bone seeks to impugn the trustee’s conduct. The Court also raised concerns that Mr Bone has failed to prosecute the removal proceedings but still repeated his serious allegations.

The Court gave advice to Gainer that it could defend the removal proceedings as it should not be left in an uncertain position as to what it ought do in relation to such proceedings (should Mr Bone comply with the orders of the Court).

In relation to advice as to a cross-claim (of which, no particulars had been provided), whilst concerned to expose the SMSF to the costs of an application for further advice, the Court noted that further advice would need to be sought before embarking on a cross-claim.

Conclusion – importance of seeking advice before defending proceedings

In the context that allegations are made against a trustee and/or a removal application is made, this decision demonstrates the importance of seeking judicial advice before proceeding with defending such proceedings or making a cross-claim.