A trustee company acts only through people. The Capital Market Act 2015 therefore places duties not just on the corporate trustee but on the individuals inside it, and backs them with personal criminal liability.
Who is an officer or employee
Section 183 defines “Officer” for Part V as “a person who is a director, secretary or executive officer of the trustee”. Section 192 applies to “an employee or an officer of the trustee of a registered scheme”, so it reaches the board, the chief executive, the company secretary, the investment team, the accountant who processes redemptions and the clerk who maintains the register. Section 456(4) widens “director” for penalty purposes to anyone acting in the position of director, however named and whether validly appointed, and to anyone “in accordance with whose directions or instructions the directors” are accustomed to act.
The six duties in section 192
An employee or officer shall “(a) act honestly; and (b) exercise the degree of care and diligence that a reasonable person would exercise if they were in the officer’s position; and (c) act in the best interests of the members and, if there is a conflict between the members’ interests and the interests of the trustee, give priority to the members’ interests; and (d) not make use of information acquired through being an officer of the trustee in order to (i) gain an improper advantage for the officer or another person; or (ii) cause detriment to the members of the scheme; and (e) not make improper use of their position as an officer to gain, directly or indirectly, an advantage for themselves or for any other person or to cause detriment to the members of the scheme; and (f) take all steps that a reasonable person would take, if they were in the officer’s position, to ensure that the trustee complies with (i) this Act; and (ii) any conditions imposed on the trustee’s licence; and (iii) the trust deed.”
The striking feature is paragraph (c). A company director ordinarily owes loyalty to the company. Section 192(1)(c) reverses that for the officers of a trustee: when the members’ interests and the trustee company’s interests collide, the members come first. Section 192(2) confirms that these duties override “any conflicting duty the officer may have”, and section 191(3) says the same from the trustee’s side. So a director who votes to pay the trustee a fee the deed does not permit, because the company needs the cash, breaches section 192 even though the Companies Act 1997 would otherwise have required loyalty to the company.
Paragraph (f) is a duty of vigilance. An officer who learns that scheme money has been left in the trustee’s own account, or that the deed has not been followed on a valuation, must take the steps a reasonable person in that position would take: raise it with the board, insist on correction, and if necessary report to the Commission under section 191(1)(j).
Section 192(3) makes contravention of any of the six duties an offence punishable by a fine not exceeding K10,000,000 or imprisonment for up to ten years, or both.
Deemed liability for the company’s offences
Section 456(1) applies across the Act. Where a body corporate commits an offence, every person who was at the time a director, chief executive officer, officer or representative, or who purported to act in such a capacity, “is deemed to have committed that offence unless he proves that the offence was committed without his consent or connivance and that he exercised all such diligence to prevent the commission of the offence as he ought to have exercised”. The burden shifts to the individual. If the trustee company is convicted of operating a scheme without registration (section 184), failing to keep a trust account (section 193) or breaching its section 191 duties, each director must prove both that they did not consent or connive and that they were diligent. Section 456(2) and (3) run the other way: an employee’s or representative’s contravention is deemed to be the trustee’s. See directors’ liability for securities offences.
Provisions that fine directors directly
| Section | Breach | Who pays | Penalty |
|---|---|---|---|
| 194(4) | Trustee deals in securities for members otherwise than as the deed and trust-account rules require | Every director personally | Fine up to K1,000,000 or five years, or both |
| 196(3) | Trustee fails to comply with the deed, the Act or other securities laws (found on a Commission surveillance check) | Every director | Fine up to K1,000,000 or five years, or both |
| 197(2) | Trustee acquires units in its own scheme without meeting the conditions | Every director | Fine up to K1,000,000 or five years, or both |
| 215(6) | Trustee uses scheme assets to pay the costs of a members’ meeting it wrongly failed to call, and does not repay treble | Every director and the chief executive | Treble the value or up to ten years, or both |
| 188(3) | Scheme operated without registration | Each director, CEO, CFO and company secretary | As for s 184: up to K10,000,000 or ten years |
Section 196(3) is drafted loosely: it speaks of a trustee “who failed to comply” with the deed or Act and then fines “every director”, without the consent-or-connivance defence that section 456 provides. Directors should assume no defence is available and ensure compliance systems exist.
Beyond criminal liability, a conviction or an adverse finding by the Commission makes a director or chief executive no longer fit and proper under section 51, and the Commission may direct the trustee to remove them. See who can be a director of a licensed firm and the trustee’s own duties.
Sources
- Capital Market Act 2015 — ss 51, 183, 184, 188(3), 191(3), 192, 194(4), 196(3), 197(2), 215(6), 456
- Companies Act 1997
Before relying on anything here, read the current text of the Capital Market Act 2015 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.