08 November 2017

Trust: LSF Trustees v. Footsteps Trustee

Creditors claiming against central Auckland properties associated with Mark Lyon, currently in jail on sex and drug charges, are being held at bay after assets held in trust were shifted across to new trustees. 
In 2010 the Footsteps Trust was established.  It owned 25 of the 28 units in a now derelict building in Karaka Street, Newton, which were originally intended for use as residential accommodation.  The Trust operated through a corporate trustee, Footsteps Trustee Company Ltd having Mark Lyon and his son Richard as directors. This corporate trustee was the registered owner of Karaka Street.  In March 2017, Footsteps Trustee was put into liquidation, insolvent.  It owes some $343,000, primarily overdue council rates and unpaid body corporate levies.  Footsteps Trustee told liquidators it no longer owns the Karaka Street properties.  The High Court was told Footsteps Trustee sold in April 2016 four top floor units to LSF Trustee Ltd, a company controlled by Mark Lyon and his solicitor Rick Phillips.  No money was paid to Footsteps Trustee; LSF Trustee instead agreed to pay some $46,700 to clear outstanding rates and body corporate levies due on the four units.  Also in April 2016, Footsteps Trustee was removed as trustee of the Footsteps Trust.  It handed over the balance of the Karaka Street units to a new trustee: TAL 41 Ltd.  Mr Phillips is TAL’s only director.  A common transfer provision requiring a new trustee to indemnify a retiring trustee for any existing trust debts was left out of the legal documentation.
Liquidators of Footsteps Trustee were left with an asset-less company owing over $343,000 with the company’s only assets now in the hands of LSF Trustee and TAL.  They sued the two companies alleging as new trustees they took the trust properties subject to the former trustee’s liability to pay overdue rates and levies.
Associate judge Bell ruled new trustees LSF Trustee and TAL are not creditors of the former trustee.  They do not owe Footsteps Trustee Co Ltd anything.  There is no legal rule requiring a new trustee to personally pay the debts of a retiring trustee, in the absence of a contractual agreement to do so.  Judge Bell said any liquidation claim in trust law would be to claim an equitable lien over the Karaka Street units held by TAL Ltd.  That requires a separate court hearing to prove an equitable right against the properties and to force a sale.  Recovery against LSF Trustee would require a further court application by the liquidators, if the purchase has been at an undervalue, Judge Bell said.           
LSF Trustees Ltd v. Footsteps Trustee Co Ltd, TAL 41 Ltd v. Footsteps Trustee Company Ltd. – High Court (8.11.17)

17.148