Chapter 8 - Beneficiaries, insolvent corporate trustees and definitions

Definitional issues

With all of the options considered in this Part, the question arises as to whether they should apply only to trading trusts, or more widely to other types of trusts. If targeted legislative provisions are necessary to address any problems cause by trading trusts, there is a preliminary issue as to whether and how the term “trading trust” should be defined in legislation, although to a large extent the necessity and form of any definition depend on what problems are identified with trading trusts and how they are proposed to be remedied. In 2002 the Law Commission recommended certain provisions applying only to trading trusts, and accordingly put forward a legislative definition as follows:445

“trading trust” means a corporation (not being a trustee corporation or a Board incorporated under Part II of the Charitable Trusts Act 1957) which in the capacity of trustee of a trust carries on any trade or business …

This definition covers the corporate nature of the trustee and the requirement for the corporation to be carrying on business, two of the key features referred to in chapter 6. However, there is no agreement about precisely what a trading trust is, since trading trusts do not necessarily follow any particular structure, and the term can be used in a wide or narrow sense. Concerns were expressed about the scope of application of the definition proposed in 2002: it was considered too broad as it would catch a wide range of corporate trustees, such as trustees of unit trusts.446 This would have undesirable consequences such as in relation to insurance costs.447 Some submitters to the Preliminary Paper in 2002 did not support any codification of a distinction between trading trusts and other types of trusts.448 There is also the problem that a definition of a trading trust may “struggle to stand the test of time.”449

If a definition were required, one possibility would be to adapt the 2002 definition to incorporate a list of express exclusions of certain corporate trustees that are intended to fall outside the definition, such as trustees of unit trusts.

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

David Goddard QC “NZLC 79  – “Some Problems in the Law of Trusts” – Implementation” (Draft Memorandum prepared for Ministry of Justice, 6 May 2007) at 5.


For example, Submission of ICANZ, above n 401, at 9.