Archive | March, 2023

Individual trustees of a SMSF – useful or a hindrance to SMSF decision making?

In 2008 I wrote an article published in SMSF magazineSeparatedDot

Having individuals as trustees of SMSFs – companies versus individuals as trustees of SMSFs 

which mainly looked at when having individuals as trustees of a SMSF can prove a false economy.

A recent Full Federal Court case authoratively sets out reality checks for SMSFs with individual trustees: Frigger v Trenfield (No 3) [2023] FCAFC 49 concerned an accountant, Mrs. Frigger and her husband, Mr. Frigger, who had been made bankrupt.

The bankrupts took action against their official receiver to require the official receiver to treat assets, which had been sequestrated by the official receiver, as the property of their superannuation fund, the Frigger Superannuation Fund (FSF). The aim of the bankrupts was to bring these assets within sub-paragraph 116(2)(d)(iii)(A) of the Bankruptcy Act (C’th) 1966 as assets not divisible amongst the creditors of undischarged bankrupts.

SMSF assets need to be owned by the trustees

Regulation 4.09A(2) of the Superannuation Industry (Supervision) [“SIS”] Regulations contains the following prescribed standard:

A trustee of a regulated superannuation fund that is a self managed superannuation fund must keep the money and other assets of the fund separate from any money and assets, respectively:

(a) that are held by the trustee personally; or

(b) that are money or assets, as the case may be, of a standard employer-sponsor, or an associated of a standard employer-sponsor, of the fund

Despite the above Regulation 4.09A(2), the comparable covenant in paragraph 52(2)(g) of the SIS Act 1993 and trust law principles that forbid trustees from mixing their own property with property held on trust, the bankrupts ran bank accounts and held assets, including rental earning real estate, in their own names which the bankrupts claimed were assets of the FSF in Frigger v Trenfield (No 3). These assets had not been put into the names of all trustees being Mr and Mrs Frigger, their children Mr Michael Frigger and Ms Jessica Frigger jointly either expeditiously or at all.

In my article I looked at the work needed and likely cost to keep assets in the name of the trustees on changes of trustee of a SMSF. The FSF, where there were numerous changes of trustee and numerous assets including real estate, was a chronic case of the imperative to keep fund assets in the name of the trustees and the significant effort and costs required my article considered. The bankrupts and the other trustees of the FSF didn’t act on the imperative made plain below in this post.

Further accounts, tax and SMSF returns and other records relied on by the bankrupts to show that the assets were owned by the FSF, and so attracted sub-paragraph 116(2)(d)(iii)(A) protection from sequestration, were found by the Full Federal Court to be deficient and insufficient to convince the Full Federal Court that the assets were assets of the FSF.

How trust property must be held. protected and made good by individual trustees of a SMSF

In the course of the lengthy joint judgement in Frigger v Trenfield (No 3) the Full Federal Court (Allsop CJ, Anderson And Feutrill JJ) elaborated on how individuals, who are co-trustees of a trust such as a SMSF must reach decisions and hold, protect and, if need be, make good the property of the trust. This elaboration is an aide-memoir for individual trustees of a SMSF:

  1. Decisions of co-trustees must be unanimous: Luke v South Kensington Hotel Co (1879) LR 11 Ch D 121 at 125. In the case of In the Estate of William Just (deceased) (No 1) (1973) 7 SASR 508 (Estate of Just), where money had been paid into a bank account held in the name of one of two co-trustees, Jacobs J said (at 513–514):
… In the case of co-trustees of a private trust, the office is a joint one. Where the administration of the trust is vested in co-trustees, they all form, as it were, but one collective trustee and therefore must execute the duties of the office in their joint capacity. Sometimes, one of several trustees is spoken of as the active trustee, but the court knows of no such distinction: all who accept the office are in the eyes of the law active trustees. If anyone refuses or is incapable to join, it is not competent for the other to proceed without him, and if for any reason they are unable to appoint a new trustee in his place, the administration of the trust must devolve upon the court. Though a trustee joining in a receipt may be safe in permitting his co-trustee to receive in the first instance, yet he will not be justified in allowing the money to remain in his hands longer than reasonably necessary. The proper course is to pay trust money into a joint bank account in the names of both or all the trustees. …
  1. In general, a trustee must discharge the duties and exercise the powers of trustee personally. Where there are co-trustees, in the absence of unanimous agreement, actions taken independently of the other co-trustees lack authority and do not bind all trustees: see, e.g., Lee v Sankey (1872) LR 15 Eq 204 at 211; Astbury v Astbury [1898] 2 Ch 111 at 115–116; Pelham v Pelham & Braybrook [1955] SASR 53 at 57. A co-trustee is not and cannot be bound by a decision of the majority and each co-trustee must turn his or her mind to the exercise of the applicable power and decide on the action to be taken: see, e.g., Cock v Smith (1909) 9 CLR 773 at 800; Re Billington [1949] St R 102 at 111, 115.
  2. As the authors of Ford and Lee: The Law of Trusts (looseleaf at 13 February 2020, Thomson Reuters) (Ford and Lee) observe (at [9.11090]): “A consequence of the unanimity rule is that trust business cannot be transacted except at a meeting at which all the trustees, or their delegates, are present; and that where the trustees cannot agree about a course of action the status quo prevails.” In the case of a regulated superannuation fund, if the superannuation entity has a group of individual trustees, the trustees must keep, and retain for at least 10 years, minutes of all meetings of the trustees at which matters affecting the entity were considered: s 103(1) SIS Act.
  3. It may also be possible for co-trustees to ratify an action taken by another trustee without prior agreement: Meeseena v Carr (1870) LR 9 Eq 260 at 262–263; Hansard v Hansard [2015] 2 NZLR 158 (Hansard v Hansard) at [47] citing Thomas Lewin and others, Lewin on Trusts (18th Ed, Sweet & Maxwell 2018) at [29-209]. However, for ratification to be effective, the ratifying co-trustee(s) must know of the essential detail of the act or decision in question. It must be more than passive acquiescence to a decision made by another trustee. The act of ratification must show that the co-trustee(s) considered the exercise of power as trustee and consented to the action taken. Thus, “[s]ubsequent approval of financial statements [by all trustees] may therefore not be sufficient to amount to ratification of actions taken without the unanimous approval of trustees”: Hansard v Hansard at [51]. Something more than mere approval of financial statements would be necessary to demonstrate the required ‘act of ratification’.
  4. Property of the trust must be held jointly and it is a breach of the trustees’ duties not to ‘get in’ the trust property and hold the legal (or where applicable equitable) title to that property jointly or otherwise hold the property under joint control: Lewis v Nobbs (1878) 8 Ch D 591 (Lewis v Nobbs) at 594; Guazzi v Pateson (1918) 18 SR (NSW) 275 at 282. As Hall VC explained in Lewis v Nobbs, the rationale for the duty is to ensure that trust property is not dealt with improperly by one of the co-trustees or without the agreement of all co-trustees.
  5. Clause 140 of the FSF Trust Deed required the trustees of the FSF to ensure that money received by the fund was, amongst other things, deposited to the credit of the fund in an account kept with a bank chosen by the trustees. That is, chosen by the co-trustees by unanimous agreement.
  6. While there may be circumstances in which property is conveyed to, or acquired, by one of a number of co-trustees as trust property with the consent of the other trustees, it remains the duty of all trustees to ensure that title to the property is ultimately convey (sic.) to and held by all co-trustees jointly within a reasonable time thereafter: Estate of Just at 513–514. Any inconvenience that might result from the changing composition of the co-trustees from time to time does not absolve the trustees of that duty: see, e.g., Trustees of the Kean Memorial Trust Fund v Attorney-General (SA) [2003] SASC 227; 86 SASR 449 at [94].
  7. Further, in the absence of an express provision permitting mixing, it is also a duty of a trustee to keep personal and trust property separated: Associated Alloys at 605 [34]. A trustee has a positive duty “to distinguish the piece of property he … acquires from other similar things which he may obtain for himself or in which he may be interested”: Van Rassel v Kroon (1953) 87 CLR 298 at 302–303 (Dixon CJ); Heydon and Leeming, Jacob’s Law of Trusts in Australia (8th ed, LexisNexis, 2016) at [17-02]. It is also trite that a trustee cannot unilaterally repudiate the trust and appropriate the trust property: Ford and Lee (looseleaf as at 14 May 2021) at [17.4530].
  8. A co-trustee is obliged, as part of the duty to get in trust property, to bring proprietary claims against another trustee who, in breach of trust, has misappropriated or mixed trust property with his or her own property. Likewise, a trustee who has participated in such a breach of trust has an obligation, notwithstanding his or her own wrongdoing, to make good the trust property and, if necessary, to institute proceedings against other trustees who participated in the wrongdoing to make good the loss: Young v Murphy [1996] 1 VR 279 at 282–284, (per Brooking J), 300 (per Phillips J), 319 (per Batt J).
  9. The above principles have significance in this appeal because the evidence before the primary judge was to the effect that Mrs Frigger alone held the legal title to the funds in the BW1 and BOQ2 accounts, Mr Frigger alone held the legal title to the funds in the BOQ1 account and Mr and Mrs Frigger jointly held the legal title to the securities in the Main Portfolio. Also, Mrs Frigger held the legal title to the Como and Bayswater properties. Therefore, the legal title to the disputed assets was not held by the co-trustees of the FSF jointly immediately before the sequestration orders were made or by the sole trustee of the FSF (H & A Frigger) immediately after the sequestration orders were made. There was no evidence before the primary judge that any of the individual co-trustees had taken any steps at any time to ‘get in’ the trust property and have funds held in a bank account in the joint names of the four individual trustees (or HAF), to transfer the securities in the Main Account into a CHESS holding account held in the joint names of the four individual trustees (or HAF), or to transfer the Como and Bayswater properties into the joint names of the four individual trustees (or HAF).

So the bankrupts fell short of the exacting requirements on individual trustees.

Majority individual trustee decisions and the unanimity rule?

The above passage from Frigger v Trenfield (No 3) does not countenance a SMSF trust deed that allows individual trustees to reach decisions by a majority of the individual trustees.

It is questionable whether a SMSF trust deed allowing for majority trustee decisions, not in conformity with the unanimity rule, satisfies paragraph 17A(1)(b) of the SIS Act. There is the prospect that a superannuation fund governed by such an (attempted) SMSF trust deed may not be (qualify as) a SMSF. That may be so unless a deeming clause in the trust deed overrides the decisions by majority clauses in the trust deed in which case individual trustees are obliged to comply with the unanimity rule nonetheless so that the superannuation fund can be regulated as a SMSF.  

No scope for equivocal individual ownership of SMSF assets

Clearly there can be no presumption that the Australian Taxation Office, a tribunal or a court will accept that an asset not in the name of a SMSF is an asset of the SMSF. The bankrupts may have hoped that, by having individual trustees, the FSF was usefully positioned to assert ownership by the SMSF of multiple properties in the names of one or more trustees but not all of them.  But the above principles set out in Frigger v Trenfield (No 3) mean that individual trustees of a SMSF, in particular, need to produce valid minutes of meetings of trustees and documents that establish and explain why an asset, and particularly an asset not in the name of all of the trustees, is an asset of a SMSF before an asset will be inferred to be an asset of a SMSF with individual trustees.

Advantages of a corporate trustee

A corporate trustee, especially a corporate trustee that acts in no other capacity, is better placed to assert ownership of any asset in the name of the corporate trustee and won’t be at the same risk of mixing trust property as a practical matter. Although corporate trustees need to keep records of their decisions, corporate trustee can have streamlined decision making procedures which need not require meetings of directors and their minuting where individual trustees can’t streamline their decision making.


Frigger v Trenfield (No 3) is a stark reminder that ownership of assets of a superannuation fund by the trustees needs to be unequivocal should a member of the fund go bankrupt. There are numerous breaches of standards beyond Regulation 4.09A(2) and bankruptcy troubles that can arise where assets of a SMSF are not kept separate from assets that are not successfully.