Consultation on regulatory proposal
Trustee Companies Regulations 2006: Proposed renewal
State Trustees Limited (State Trustees) is undertaking a consultation in regard to the Trustee Companies Regulations 2006 (Vic.) (TC Regulations).
The TC Regulations now apply only in respect of State Trustees. They are due to expire (‘sunset’) on 28 March 2016.
The regulations are made under the Trustee Companies Act 1984 (Vic.) (TC Act). The particular provisions of the TC Act to which the TC Regulations relate have all been repealed, in most part as a consequence of the regulation of trustee companies being moved from State to Federal level in the course of 2010. However, State Trustees is not covered by the new Federal regime, and by law the relevant provisions continue to apply in respect of State Trustees in a preserved form, namely the form in which they were in force as at 10 May 2010.
In this context, State Trustees is proposing that the TC Regulations be remade in their current form, to ensure the continuity and cohesiveness of its regulatory framework.
Why is State Trustees conducting this consultation process?
The Victorian Government has requested that State Trustees undertake a consultation process in relation to the proposed renewal, to allow any concerns about the proposed renewal of the TC Regulations to be raised, before the Victorian Government makes a final decision on the matter.
In Victoria, regulations must include a mandated ten-year ‘sunsetting’ provision, which ensures that they are regularly reviewed. This consultation allows an opportunity for people to inform themselves about, and give any feedback about, the proposed renewal.
Background to the TC Regulations
Regulation of trustee companies under Victorian law
The TC Regulations relate to particular provisions of the TC Act.
The TC Act originally established a regulatory framework for specific authorised companies to operate in Victoria as, and perform the traditional functions and services of, a trustee company. State Trustees became an authorised trustee company under the TC Act on 1 July 1994. (It is the only ‘public-trustee’ entity in Australia to have been given ‘trustee-company’ status.)
The TC Regulations were made in a context where they applied to a number of trustee companies, including State Trustees; however, as explained below, that is no longer the case: the TC Regulations now apply only in respect of State Trustees.
Reforms affecting trustee companies other than State Trustees
Prior to 2010, each Australian State and Territory had its own separate and unique regime for regulating trustee companies. In the course of 2010, a series of reforms were rolled out which resulted in the primary regulation of Australian authorised trustee companies being moved from State and Territory law into Federal (Commonwealth) law, in particular into the Corporations Act 2001, and the Corporations Regulations 2001.
Continued application of the Victorian regulatory regime in respect of State Trustees
The new Federal regulatory regime commenced on 6 May 2010, and most of the regulatory provisions of the TC Act were repealed, with effect from 11 May 2010.
However, the Victorian Government had decided that, due to State Trustees’ status as a State owned company, it should not be brought under the new Federal regulatory regime, but should continue to be governed by the existing Victorian trustee companies regime. This was achieved by a legislative amendment that made the existing version of the TC Act (the version as in force on 10 May 2010) continue to apply in respect of State Trustees: see the State Trustees (State Owned Company) Act 1994, section 20A.
As a consequence of these reforms, and a further legislative amendment that took effect on 1 January 2015, the TC Regulations currently apply only in respect of State Trustees. The other continuing trustee companies (none of which are State owned companies) are subject to the Federal regulatory regime, under which they are referred to as ‘licensed trustee companies’. Under the Corporations Regulations 2001, State Trustees can only be brought under the Federal regulatory regime if the State of Victoria requests that this occur, and the relevant Federal Minister agrees to the request: See regulation 5D.1.01A(2).
What things do the TC Regulations cover?
The TC Regulations cover a number of matters that arise under the TC Act.
They prescribe matters relating to various provisions which were previously in the TC Act, and which are now only found in the version of the TC Act that is preserved to apply solely in respect of State Trustees (the version in force as at 10 May 2010).
The following is an outline of each of the operative regulations.
Charitable trust administration fee: manner of calculating trust value (regulation 7)
For its administration of a perpetual (charitable) trust, State Trustees is entitled to an annual administration fee under section 21A of the TC Act. The fee must not exceed 1.056% per annum of the value of the trust.
Regulation 7 prescribes the manner of calculating the value of the trust: it is the value of the assets of the trust at the time the administration fee is drawn without deduction of any liabilities. So, the purpose of the regulation is to facilitate calculation of the maximum quantum of the fee in any given case.
Section 21A was enacted in 1995 to provide an alternative to charging commission (capital and income) on charitable trusts. Under the TC Act, capital growth on a trust’s investments does not attract commission until it is distributed or otherwise paid out, but in the case of a charitable trust this may not occur until a substantial number of years, potentially even decades, has passed. The annual administration fee was therefore introduced as an alternative mechanism for remunerating a trustee company that acts as the trustee of a charitable trust.
A similar fee provision applies to licensed trustee companies, which are now regulated under the Corporations Act 2001. Under section 601TDD, a licensed trustee company is entitled, for acting as trustee of a charitable trust, to charge an annual management fee at a rate not exceeding 1.056% on the gross value of the charitable trust’s assets.
It is, in our view, essential for the proper administration of charitable trusts that regulation 7 be renewed in a timely manner. If regulation 7 were not to be renewed, the likely effect on charitable trusts administered by State Trustees is unclear. It may give rise to the need for court applications to clarify the position. This may result in additional, and otherwise unnecessary costs being borne by the relevant trusts. State Trustees may choose to revert to taking capital and income commission on such trusts, so that it could continue to be remunerated as trustee, albeit at a rate that would be reduced in the longer term. However, from a structural perspective, the effect of such a disadvantageous disparity between the Federal and the Victorian regulatory regimes may be that State Trustees would be less willing to take on the role of trustee for charitable trusts.
Other prescribed matters
The other matters the TC Regulations prescribe are as follows:
- Regulation 6 prescribes the forms for elections to administer an estate under section 11A.
- Regulation 8 prescribes some exemptions from the prohibition on certain commissions under section 23.
- Regulation 9 prescribes some exemptions from the prohibition on loans from estates to related corporations under section 32.
- Regulation 10 prescribes two periods for the purposes of the trustee company’s reserve fund and reserve liability obligations under section 36.
- Regulation 10 prescribes the form of declaration to be made in respect of the trustee company as to certain financial matters under section 52.
Whilst State Trustees does not consider these regulations (regulation 6, and regulations 8-11) to be essential, they do support the integrity and cohesiveness of the regulatory regime that applies to State Trustees as a trustee company. We therefore believe these regulations should also be renewed at this time, pending the opportunity for a fuller review of the regulatory regime as a whole.
Click here to request further information in relation to any of these regulations.
If the proposed renewal of the TC Regulations goes ahead, will the law change?
No. The renewal of the regulations in their current form would simply mean that the law would continue as it is now. The next time at which the regulations would have to be reviewed would be in March 2026.
Where can I view the TC Regulations and the version of the TC Act to which they relate?
Click the links below to see full copies of:
- the TC Regulations
- the TC Act as in force on 10 May 2010 (the version that is preserved to apply in respect of State Trustees alone)
How do I give feedback, or get answers to questions?
At State Trustees, we believe that stakeholder consultations like this are an important part of ensuring Victoria’s regulatory framework remains appropriate and up-to-date.
Please forward any issues your organisation wish to raise in relation to this consultation to Alistair Craig, Senior Corporate Lawyer, State Trustees, at the following email address: firstname.lastname@example.org
You may also telephone Alistair directly on (03) 9667 6441 if you wish to clarify any aspect of this consultation.
To ensure your views are able to be considered as part of the current consultation process, please send your feedback to the above email address so that it is received no later than 12:00 p.m. midday (AEDT) on Friday, 12 February 2016.