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Can trustees do what they want with assets held in a company?

Phia van der Spuy.

Phia van der Spuy.

Published May 18, 2022


TRUSTEES often believe that they can do as they wish with assets held in a company, and that beneficiaries have no rights to or say regarding such assets. Such a view is wrong.

Trust as shareholder

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Shareholders only own shares and do not participate in the day-to-day management of the company. A trust does not have legal personality and can, therefore, not vote as a shareholder because it is only an accumulation of assets. Despite its lack of legal personality, a trust has legal capacity and the trustees, on behalf of the trust, may perform juristic acts relating to trust assets, such as managing investments in companies, provided the trust instrument allows for this.

The Companies Act prescribes certain matters that need the shareholders’ approval. In these circumstances, the shareholders will participate in the control of the company. The only limit the Companies Act places on shareholders is that they must not act oppressively (in other words, behave in a burdensome, harsh and wrongful manner) towards other shareholders and directors. Other than that, they are free to do and vote as they please.

The trustees, therefore, are able to vote and attend to the trust’s business, including any shareholding in companies. They should, however, always act in the best interests of the trust and its beneficiaries.

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Any breach of agreement between a nominee shareholder (a trustee) and the beneficial shareholder (the trust) is a matter to be decided between them, and the company cannot be a party to their dispute.

The company can only rely on the share register to ascertain who is authorised to act as shareholder. It cannot rely on any other evidence to question the validity of the actions of trustees on behalf of a trust, such as resolutions taken in terms of the trust instrument by trustees as reflected on the Master’s Letters of Authority (Blue Square Advisory Services (Pty) Ltd v Pogiso case of 2011).

Directors as managers

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The business and affairs of a company are managed by, or under the direction of, its board of directors. Section 66 of the Companies Act places a duty on the directors to manage the company and states that the business and affairs of a company must be managed by, or under, the direction of its directors and that the directors have the authority to exercise all of the powers and perform any of the functions of the company, except to the extent that the Companies Act or the MOI of the company provides otherwise.

Trustees, who are appointed directors of the company, cannot do as they please and hide behind the company to not act in the best interest of the beneficiaries where the trust is the sole shareholder. In the Griessel v De Kock case of 2019, it was argued that, notwithstanding the fact that the son and other potential beneficiaries had previously been allowed to occasionally occupy the farm, no vesting of rights resulted from this, as the farm in question was owned by a separate entity, namely the company.

The trustees argued that the company, and not the trust, had exclusive right to allow persons access to the farm. The Court held that it “is common cause that the trust is the sole shareholder of the company, which is a registered private company. Given that scenario, the trust, in capacity of shareholder, has voting rights in the company. It is trite that a trustee is the owner of the trust property for purposes of the administration of the trust. Equally trite is that where more than one trustee have been specified in the trust deed, they must act jointly in the fulfilment of the objects of a trust.

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Given all these well-established principles, it cannot be gainsaid that the first, second and third applicants, as trustees, jointly exercise the voting rights in the company, which have been conferred by the shares owned by the trust. They therefore make decisions pertaining to the farm, including granting access rights”.

The judge stated that “if the trust then is this empty shell with no decision-making powers over its property, then the question is why it still exists”. Since certain family members retained control over the trust assets (both directly and indirectly), the Court had no option but to apply the principle of substance over form to determine the true picture behind the activities of the trust. Because the trustees failed to distinguish between their personal estates and the trust assets, the Court pierced the corporate veil.

The judge concluded that “in the same way that the trust is not permitted to discriminate between beneficiaries, one can say the same of the company that is holding the trust property”. Therefore, specifically where all the shares in a company are held in trust, the trustees, acting jointly, actually control the company and the trustees cannot hide behind the company and claim the beneficiaries have no rights to assets held in the company, and that they can be deliberately excluded from benefiting, without good reason.

Phia van der Spuy is a Chartered Accountant with a Masters degree in tax and a registered Fiduciary Practitioner of South Africa®, a Master Tax Practitioner (SA)™, a Trust and Estate Practitioner (TEP) and the founder of Trusteeze®, the provider of a digital trust solution.


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