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Trusts Act 2019

Trustees’ powers and indemnities - Trustees’ indemnities

86: Creditor’s limited claim to trust property through trustee’s indemnity

You could also call this:

"When a trustee owes you money, you can claim it from the trust, but only up to the benefit the trust received."

Illustration for Trusts Act 2019

If you are a creditor, you can claim against a trustee for money you are owed. You can do this if the trustee has a right to be paid back from the trust property, or if the trustee is not entitled to be paid back but you have given value and the trust has received a benefit. The trust must have received a benefit from the transaction between you and the trustee, and you must have acted in good faith.

You can be paid from the trust property as if you were a trustee who is entitled to be paid back. However, if you knew that the trustee was not entitled to be paid back, you are not considered to have acted in good faith. Your claim is limited to the benefit the trust received, plus interest calculated according to the Interest on Money Claims Act 2016.

You will be paid before any beneficiaries, unless the court decides otherwise. This does not change the order in which other creditors are paid from the trust property. These rules also apply if the person who owed you money is no longer a trustee, but they incurred the expense or liability while they were a trustee.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM7382995.

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Part 4Trustees’ powers and indemnities
Trustees’ indemnities

86Creditor’s limited claim to trust property through trustee’s indemnity

  1. This section applies if a trustee incurs an expense or a liability to a creditor and the trustee—

  2. has a right to be indemnified from the trust property; or
    1. for any reason is not entitled to be indemnified or fully indemnified from the trust property (for example, because the trustee incurred the liability in breach of trust) but—
      1. the creditor has given value; and
        1. the trust has received a benefit from the transaction between the trustee and the creditor; and
          1. the creditor has acted in good faith.

          2. The creditor has a claim against the trustee that may be satisfied by the creditor being indemnified from the trust property as if the creditor were in the position of a trustee who has a right to be indemnified from the trust property.

          3. The creditor has not acted in good faith for the purposes of subsection (1)(b)(iii) if the creditor had knowledge of the circumstances that excluded or limited the trustee’s indemnity (whether or not the creditor knew they would have that effect).

          4. For the purposes of subsection (1)(b), a claim under this section—

          5. is limited to the benefit received by the trust (together with interest calculated in accordance with Schedule 2 of the Interest on Money Claims Act 2016); and
            1. must be paid in priority over any payment to a beneficiary, unless the court orders otherwise; and
              1. does not alter the priority of creditors who are entitled to claim from the trust property.

                1. This section applies in respect of a former trustee who incurs an expense or a liability as a trustee acting on behalf of the trust.