Chapter 6 - Introduction to trading trusts

What is a trading trust?

Although “ultimately no dogmatic structure restricts trading trusts”,190 this section will set out some features that are commonly associated with trading trusts. Taking a wide definition, a trading trust is a trust that actively carries on business. It has been said that “the main characteristic of the trading trust is that the trust property is used in the conduct of business.”191 It is this feature that distinguishes a trading trust from an investment trust under which property held by a trustee is used for passive (or even active) investment.192

The term “trading trust” is often used to describe a structure in which the trustee of a trust is a limited liability company, instead of a natural person.193 This trustee can be referred to as a corporate trustee (or sometimes a trustee company).194 The corporate trustee generally has few or no assets of its own aside from the trustee’s right to indemnity out of trust assets. All the assets are held on trust for the beneficiaries. The trust is usually discretionary.195 As the Law Commission stated in 2002:196

There is established a trust, of which the sole trustee is a limited liability company. It is that company that trades, but the assets to which the company has title are beneficially owned by the beneficiaries of the trust, so that if the company fails the only assets available to the creditors of the company in liquidation are the trustee’s right to indemnity out of such assets of the trust as may still be available.

In the recent New Zealand case of Levin v Ikiua, the term “trading trust” has been more narrowly defined to identify a business operated by an assetless company, in the capacity as a trustee for named beneficiaries.197 There is an issue as to how trading trusts should be defined, which would need to be addressed if references to them were to be included in legislation. This is addressed in more detail in chapter 8 below.

According to Crossland, “two main species of corporate trustee abound for trading trusts”:198 first, that of a single trust trustee, often trustee for one set of assets under one trust deed trading as a single business venture; and secondly, trustee companies set up by professional legal and accountancy firms that administer clients’ trading trusts. The issues addressed in this Part primarily concern the first type, but also touch on some problems raised by the second.199

Trading trusts also need to be distinguished from “business trusts”, used principally as a means of succession planning (often in conjunction with family trusts) where the trust holds the shares in a company which owns the business assets.200

GE Dal Pont Equity and Trusts in Australia (Thomson Reuters, Rozelle (NSW), 2011) at [27.10].


Andrew S Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at 416 [Equity and Trusts].

This in itself is not a new development: companies have always been able to act as trustees; unless the trust instrument prevents the appointment of a corporation, a corporation may act as trustee: Trustee Act 1956, s 48.

This is distinct from a trustee company under the Trustee Companies Act 1967.

Heath, above n 179, at 523.

Law Commission Some Problems in the Law of Trusts (NZLC R79, 2002) at 14.

Levin v Ikiua [2010] 1 NZLR 400 (HC) at [97], affirmed [2010] NZCA 509.

Kalev J Crossland “Unsecured creditors and the ‘Uncorporation’: issues with trading trusts post Global Financial Crisis” (2011) 17 Trusts and Trustees 185 at 188–189.

Such companies will also be addressed in the third stage of the Law Commission’s Review of the Law of Trusts, which will look at the Trustee Companies Act 1967.

Law Commission Review of Trust Law in New Zealand: Introductory Issues Paper (NZLC IP19, 2010) at [2.72].