Risks for Trustees
The Pike River Mine tragedy has changed the way in which health and safety is thought about. This, and other legislative changes, are likely to have major effects for trustees in the future. If your trust owns any type of business or a farm, the trustees need to start thinking more about their responsibilities.
Following the Pike River disaster a Royal Commission under Justice Pankhurst looked at what went wrong and what we can learn from this tragedy for the future. As a result, the authorities are now taking occupational health and safety much more seriously. In the future the laws are likely to be re-written to require a lot more of employers. Regulations that might once have been dismissed as ‘nanny state’ will now need much more attention paid to them. This might not seem important to trustees as few trusts own a coal mine. But the new regime will go much further and wider than that. The forestry industry is one which has already been targeted. Any trust which owns any type of business will need to be concerned about health and safety requirements. Trustees can be liable for very substantial damages and fines if the trust fails to meet its obligations.
There are other laws which may affect trustees where a business is operated through the trust. Employment laws can give rise to liabilities and environmental damage can create liability under the Resource Management Act 1991. This is particularly important for trusts which operate a farm. The owners of the farm may be liable for injury to contractors and others working on the farm or visiting the farm – and in the case of a trust, that means the trustees may be liable. You may remember reading the case a few years ago of the farm owners who were held liable for the loss of life caused by the collapse of a private bridge on their property, even though they had not built the bridge themselves. If you ask workers or contractors onto your premises or property, you are responsible for their safety. One solution, in the case of farms, is often to have the trust own the land but the trustees lease it back to the settlor who runs the farm. This does not, however, relieve trustees from all potential liability because they will still be owners of the land. Another possibility is to operate the business through a company. You then have the question, however, of who is to be the director of the company. Directors can be exposed to the same types of liabilities as those outlined above in the case of trustees.
It’s also important to remember that trustees can be held personally liable. If the trust doesn’t have enough money, the trustees may have to put their hands into their own pocket. When trustees sign loan documents or other contracts, they can insist on a clause saying they are not personally liable and only have to pay out of the trust fund. But if you are sued for negligence or failure to comply with regulations – or you are fined – then your liability is personal and not limited to trust assets.
None of this is intended as suggesting that trustees should not hold businesses as trust assets. Where trustees own or operate a business or a business premises, they need to ask themselves some questions:
»» Are they aware of all of their responsibilities under health and safety, resource management and other similar laws?
»» Have they taken all reasonable steps to comply with the legislation?
»» Have they taken out adequate insurance to cover all the risks involved?
If you need some guidance on your responsibilities as a trustee in terms of owning and/or operating a business, please don’t hesitate to contact us.