Many Australian family trusts have a company as trustee. The board of that company is often not just family. A family office executive, a long-serving accountant or a trusted adviser may be invited to join “to bring some independence”, or simply because someone has to sign.
Accepting the seat is a legal commitment. A director of a corporate trustee can carry personal exposure for trust debts, tax and the quality of trustee decisions, and may face pressure from family members with different interests. For professionals based in Singapore, Hong Kong or Malaysia who sit on Australian trustee boards, or run offshore trustee companies from Australia, there are further issues.
This article outlines the issues. Family office governance and single family office structures are covered in separate articles.
Personal liability for trust debts: section 197
A corporate trustee incurs debts in its own name. Its creditors usually look to the trustee’s right to be indemnified out of the trust assets. Section 197 of the Corporations Act 2001 (Cth) adds a further layer. A director of a corporate trustee may be personally liable, together with the company, for a liability the company incurred as trustee and cannot discharge, where the company is not entitled to be fully indemnified from trust assets because of:
- a breach of trust;
- acting outside the scope of its powers as trustee; or
- a term of the trust denying or limiting its right of indemnity.
The provision’s note makes clear that a director is not liable merely because the trust assets are insufficient. The risk arises where the indemnity has been lost or restricted, which is often linked to how the trustee was run. Liability attaches to those who were directors when the liability was incurred.
Insolvent trading
A director may be liable under s 588G for debts the company incurs while insolvent, or which make it insolvent, where there were reasonable grounds to suspect insolvency. For a trustee company, debts incurred as trustee are still the company’s debts. Whether the company is solvent can depend on the value of its right of indemnity and whether that right has been compromised.
Director penalty notices: PAYG withholding, GST and super
Under the director penalty regime in Division 269 of Schedule 1 to the Taxation Administration Act 1953 (Cth), directors can become personally liable for a company’s unpaid PAYG withholding, GST and superannuation guarantee charge.
- The “lockdown” concept. If amounts are not reported to the ATO within the statutory period after the due date, the penalty generally cannot be remitted by placing the company into administration or liquidation. It may only be resolved by payment.
- Super guarantee. The timing rules for the superannuation guarantee charge were revised from 1 July 2026 alongside the payday super reforms.
- New and former directors. The ATO states that a new director can become liable for amounts that fell due before appointment unless the company acts within a short period. A director who resigns remains liable for amounts relating to the period while in office.
Directors’ duties and trustee duties overlap
A director of a trustee company owes statutory duties under ss 180 to 184 of the Corporations Act: care and diligence, good faith and proper purpose, not improperly using position or information, and related criminal offences. These duties are owed to the company. But the company’s business is acting as trustee, so the directors’ decisions are, in substance, trustee decisions.
When the company exercises a discretion, such as deciding a distribution, Australian courts expect real and genuine consideration. The principle is associated with Karger v Paul [1984] VR 161. In Finch v Telstra Super Pty Ltd [2010] HCA 36, the High Court emphasised, in the superannuation context, that consideration which is not properly informed may not be genuine. Signing resolutions prepared elsewhere, without understanding the beneficiaries’ circumstances, may expose a decision to challenge.
De facto and shadow directors
The Corporations Act’s definition of “director” in s 9 can extend to a person who acts in the position of a director without being validly appointed, and to a person whose instructions or wishes the directors are accustomed to act on. There is an exception for advice given in the proper performance of a professional capacity, or in a business relationship.
A family office executive who in practice decides distributions and has the appointed directors sign may risk being treated as a director, with the duties and liabilities that follow. So might a patriarch who has left the board but still directs it, depending on the facts.
Conflicts on a family trustee board
- Employee of the family, fiduciary to all beneficiaries. A family office professional may be employed by one entity or person but, as director of the trustee, must act in the interests of the beneficiaries as a whole under the deed.
- Instructions from the patriarch or matriarch. The founder’s wishes may be relevant and can be considered, for example through a letter of wishes. But a trustee that simply follows directions risks failing to exercise its own discretion.
- Acting for one branch. A director nominated by one branch of the family does not represent that branch on the board. Where interests diverge, conflicts may need to be declared, managed and recorded.
Information, minutes and timing
Directors need information: the deed and variations, financial statements, tax advice and the beneficiaries’ circumstances. Minutes may later be the main evidence of what the board considered.
The ATO’s expectation that income distribution resolutions be made by 30 June each year, and the role of anti-Bartlett clauses where the trustee holds shares in a family company, are covered in our separate articles.
Protection for directors: issues to consider
- Deeds of access, indemnity and insurance. Sections 199A and 199B limit what a company may indemnify, and the insurance premiums it may pay. Liabilities owed to the company itself, certain penalties, and conduct not in good faith are among the excluded areas.
- The value of the company’s indemnity. A trustee company often has no assets of its own. An indemnity may be only as good as the trustee’s right to be indemnified from the trust, which may be lost after a breach.
- D&O insurance. Policy limits, exclusions for dishonesty or wilful breach, and whether claims by beneficiaries or the ATO are covered may all need review.
- Trust deed indemnities and exoneration clauses. Many deeds protect the trustee, but generally not for fraud or dishonesty, and some also exclude gross negligence or wilful default. The precise wording matters.
- Independent advice. Whether advice was taken and considered can be relevant to a director’s position.
- Resigning properly. Resignation must be effective under the constitution and notified to ASIC. Resigning does not end exposure for liabilities, tax amounts or decisions from the period in office. When a corporate trustee retires, questions about its continuing indemnity and records also arise.
Offshore trustee companies run from Australia
A trustee company incorporated in Singapore, Hong Kong, Labuan or the BVI can become an Australian resident for tax purposes if its central management and control is in Australia. The ATO’s view is in TR 2018/5. A board that in practice makes its decisions in Australia may change the tax position of the trust.
Director ID and resident director requirements
Every director of an Australian company must hold a director identification number before appointment. An Australian proprietary company must have at least one director who ordinarily resides in Australia (s 201A). Both affect boards made up mainly of family members or advisers living in Asia.
Questions for prospective directors to discuss with an adviser
- Have I read the trust deed, variations and the company constitution, and do I understand whose instructions the board acts on?
- Has the trust ever borrowed, traded or guaranteed, and is the right of indemnity intact?
- Are PAYG withholding, GST and super obligations reported and paid on time?
- Will I receive a deed of access, indemnity and insurance, and what does the D&O policy exclude?
- How are conflicts, branch nominations and founder instructions handled and minuted?
- Where are board decisions actually made, and does that affect tax residency?
- What would my position be after resigning?
Frequently asked questions
Is a director of a corporate trustee personally liable for trust debts?
Not merely because the trust lacks assets. Under s 197, liability can arise where the company cannot pay and is not fully indemnified from the trust because of a breach of trust, acting outside power, or a term limiting the indemnity. Whether that applies depends on the facts.
What are the duties of directors of a family trustee company?
They have the statutory duties under ss 180 to 184 of the Corporations Act, and the company has duties as trustee. In practice, directors need to ensure the trustee acts within the deed, considers the beneficiaries and gives real and genuine consideration to its decisions.
Can I be a shadow director of a family trust company?
Possibly. A person whose instructions the board habitually follows may be treated as a director, subject to an exception for proper professional advice. It turns on the facts.
Every family’s situation is different, and the answer often turns on details. Book a consultation so we can review your documents and circumstances before you act.
How Chua Tan Associates can help
Chua Tan Associates advises private banks, trust companies and family offices on Australian law issues, and advises directors of family trustee companies on their constitution, deeds of access and indemnity, governance and decision-making. Justin Chua trained in accounting (Bachelor of Commerce, accounting major), is an affiliate member of STEP (the Society of Trust and Estate Practitioners), and advises on the legal and tax structure of family wealth together. He is a Nationally Accredited Mediator and an Accredited Family Business Advisor. We work with the family’s accountant and registered tax agents, and with lawyers in Asia, and advise in English, Mandarin and Cantonese.
Important: This article is general information only and must not be relied on. It is not legal, tax or financial advice, does not take your circumstances into account, and may not reflect changes in the law after publication. Laws of other countries may also apply. Do not act or refrain from acting on the basis of this article. Reading it or contacting us does not create a lawyer–client relationship. Please book a consultation for advice on your situation.
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Chua Tan Associates acts for families, executors, trustees and their professional advisers in estate planning, estate administration and estate disputes in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal or tax advice.
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