UNIFORM
STATUTORY TRUST ENTITY ACT
SECTION 101. SHORT TITLE.
This [act] may be cited as the
Uniform Statutory Trust Entity Act.
Comment
Because this Act provides for the creation and use of a statutory trust
as a form of business organization, it might seem that “Uniform Business Trust
Act,” “Uniform Statutory Business Trust Act,” or “Uniform Statutory Trust Act” would
be a better title. However, after
consultation with experts in the structured finance, bankruptcy, mutual fund,
and estate planning industries, the drafting committee rejected those and other
such titles in favor of “Uniform Statutory Trust Entity Act.”
The
drafting committee included the word “entity” in the title for two
reasons. First, the creature of this act
is indeed a trust entity. It has the
power to sue, be sued, and transact in its own name. A common-law trust, by contrast, is not a
juridical entity. Second, the word
“entity” in the title differentiates this act from the Uniform Trust Code,
which is a codification of the common law of trusts. However, to conform with prevailing usage
under the Delaware Statutory Trust Act, the entity that arises under this Act
is called a “statutory trust,” not a “statutory trust entity.” See Section 102(15). Further, because the drafting committee
wanted a statutory trust under this act to receive treatment under applicable
regulatory law similar to that of a Delaware statutory trust, the entity
features of a statutory trust under this act closely resemble those of a
Delaware statutory trust.
The
drafting committee had three reasons for eschewing the phrase “business
trust.” First, under this act a
statutory trust need not have a business or commercial purpose. On the contrary, Section 302 confirms that a
statutory trust may have any lawful purpose other than a prevailingly donative
purpose.
Second,
the drafting committee endeavored to avoid any implication on whether a
statutory trust would qualify as a “business trust” under the bankruptcy code. Under the bankruptcy code, the definition of
a “debtor” eligible for bankruptcy includes a “person,” 11 U.S.C.
§101(13), the definition of “person”
includes a “corporation,” id.
§101(41), and the definition
of “corporation” includes a “business trust.”
Id. §101(9). Hence, a “business trust” might qualify as an
eligible “debtor.” Bankruptcy eligibility
is a significant issue for trusts used as special purpose entities in
structured finance transactions, a principal use of the modern statutory trust
in practice. Such trusts are often
designed to be “bankruptcy remote.” Thus,
as in the leading case of In re
Secured Equipment Trust of Eastern Airlines, Inc., 38 F.3d 86 (2d Cir.
1994), in certain configurations trusts
used in securitization transactions have indeed been held not to be “business
trusts” under the bankruptcy code.
Third,
the drafting committee was influenced by the revealed preference for “statutory trust” over “business trust” among
existing users of statutory business trusts as evidenced by the dominant
position of the Delaware Statutory Trust Act relative to the statutory or business
trust acts of the other states. See
Robert H. Sitkoff, The Rise of the Statutory Business Trust [in progress]. In 2002 Delaware recast the “Delaware
Business Trust Act” as the “Delaware Statutory Trust Act,” replacing nearly
every reference to “business trust” with “statutory trust.” See
73 Del. Laws 329 (2002). The Connecticut statute, which is the second
most popular, is likewise cast as a Statutory Trust Act. See Connecticut Statutory Trust Act §§34-500,
34-501(2).
SECTION 102. DEFINITIONS.
(1) “Beneficial owner” means the
owner of a beneficial interest in a statutory trust or foreign statutory trust.
(2) “Certificate of trust” means the
record that has been filed by the Secretary of State under Section 201. The term includes the record as amended or
restated.
(3) “Common-law trust” means a fiduciary relationship with
respect to property arising from a manifestation of intention to create that
relationship and subjecting the person that holds title to the property to
duties to deal with the property for the benefit of charity or for one or more
persons, at least one of which is not the sole trustee, whether or not the
purpose of the trust is donative or commercial.
The term includes the type of trust known at common law as a
“business trust”, “Massachusetts trust”, or “Massachusetts
business trust.”
(4) “Designated office” means:
(A) for a statutory
trust, the mailing address that it is required to designate under Section
201(a)(2); or
(B) for a foreign
statutory trust, its principal office.
(5) “Foreign statutory trust” means a
trust that is formed under the laws of a jurisdiction other than this state that
would be a statutory trust if formed under the laws of this state.
(6) “Governing instrument” means the
trust instrument and certificate of trust.
(7) “Jurisdiction” means a state, a foreign
country, or a subdivision of a foreign country.
(8) “Person” means an individual,
corporation, estate, trust, partnership, limited partnership, limited liability
company, association, joint venture, public corporation, government or
governmental subdivision, agency, or instrumentality, or any other legal or
commercial entity.
(9) “Property” means all property,
whether real, personal, or mixed, or tangible or intangible, or any interest
therein.
(10) “Qualified foreign statutory
trust” means a foreign statutory trust that is authorized to do business in
this state.
(11) “Record” means information that
is inscribed on a tangible medium or that is stored in an electronic or other
medium and is retrievable in perceivable form.
(12)
“Related person”, with respect to a trustee, officer, employee, manager, or
beneficial owner, means:
(A) the spouse of the
person;
(B) a child, parent,
sibling, grandchild, or grandparent of the person, or the spouse of one of them;
(C) an individual having
the same home as the person;
(D) a trust or estate of
which a related person described in subparagraph (A), (B), or (C) is a
substantial beneficiary;
(E) a trust, estate,
incompetent, conservatee, or minor for which the person is a fiduciary; or
(F) a person that is directly or indirectly controlled by, or is under common
control of, the person.
(13) “Sign” means, with the present
intent to authenticate or adopt a record:
(A) to execute or adopt
a tangible symbol; or
(B) to attach to or
logically associate with the record an electronic symbol, sound, or process.
(14) “State” means a State of the
United States, the District of Columbia, Puerto Rico, the United States Virgin
Islands, or any territory or insular possession subject to the jurisdiction of
the United States.
(15) “Statutory trust” means an
unincorporated entity formed under this [act].
(16) “Trust” includes a common-law
trust, statutory trust, and foreign statutory trust.
(17) “Trust instrument” means a
record other than the certificate of trust which provides for the governance of
the affairs of the statutory trust and the conduct of its business. The term includes a trust agreement, a
declaration of trust, and bylaws.
(18) “Trustee” means a person designated,
appointed, or elected as a trustee of a statutory trust or foreign statutory
trust in accordance with the governing instrument or applicable law.
Comment
Principal
Sources – Delaware Statutory
Trust Act §3801; Connecticut Statutory Trust Act §34-501; Uniform Limited
Partnership Act §102 (2001); SEC Rule 144(a)(1), 17 C.F.R.
§230.144(a)(1).
Paragraph
(1) [comment to come re top-level beneficial owner].
Paragraphs (2), (6), and (16) define
“certificate of trust,” “governing instrument,” and “trust instrument”
respectively. The certificate of trust
is the record that under Section 201 must be delivered to a public official for
filing to form a statutory trust. The
trust instrument is the transaction document that provides for the governance
of the affairs of the statutory trust and that need not be made part of the
public record. Together, the certificate
of trust and the trust instrument compose the governing instrument. The term “governing instrument” is in the
singular to conform with standard commercial usage. Conflicts between the certificate of trust
and the governing instrument are resolved pursuant to Section 201(d). Although
the term “trust instrument” is phrased in the singular, consistent with current
commercial practice the drafting committee contemplated that there would often
be more than one such instrument.
Section 104(b) makes authorization of multiple instruments explicit.
Paragraph
(3) defines “common-law trust” consistently with Restatement (Third) of Trusts
§2 (2003), except that as defined herein the term expressly includes a common
law business trust. See also Uniform
Trust Code §102 cmt. (2000).
[Paragraph
(9) issues to be addressed.]
Paragraph (12) defines the term
“related person,” which is used in Sections 507 and 607 concerning the legality
of certain interested transactions. In
using but not defining the term “substantial” in Paragraph (11)(D), the
drafting committee contemplated that a totality of the circumstances test would
apply. Section 512 defines the term
“independent trustee” with respect to a statutory trust that is an investment
company under the Investment Company Act of 1940.
Paragraph (18) defines “trustee” as a
person designated as such in accordance with the governing instrument or
applicable law. For discussion of
trustee appointment, see the Comment to Section 501.
(a) Except as otherwise provided in
subsection (c) and the terms of the governing instrument, this [act] governs
the management and affairs of the statutory trust and the rights, interests,
duties, obligations, and powers of, and the relations among, the trustees, the beneficial
owners, and other persons.
(b) Except as otherwise provided in subsection
(c), a governing instrument may contain:
(1) any provision
relating to the management and affairs of the statutory trust; and
(2) any provision
relating to the rights, interests, duties, obligations, and powers of the
trustees, the beneficial owners, and other persons.
(c) The terms of the governing
instrument prevail over any provision of this [act] except:
(1)
the provisions of [Articles] 2, 8 except for section 808(b), 9 and 10;
(2) the exclusion of a
prevailingly donative purpose under Section 302;
(3) the choice of governing
law as provided in Section 305;
(4) the provisions
pertaining to series trusts in Sections 401(a), 402(b) and (c), 404, and 406.
(5) the standards of
conduct for trustees under Section 505, but the governing instrument may prescribe
the standards by which good faith, best interests of the statutory trust, and care
that a person in a similar position would reasonably believe appropriate under
similar circumstances are determined, if the standards are not manifestly
unreasonable;
(6) the right of a trustee to information
under Section 508, but the governing instrument may prescribe the standards for
assessing whether information is reasonably related to the trustee’s discharge
of the trustee’s duties as trustee, if the standards are not manifestly
unreasonable;
(7) the prohibition
under Section 509 of indemnification, advancement, or exoneration for conduct
involving bad faith, willful misconduct, or reckless indifference;
(8)
the limitations in Section 510(c) on direction of trustees that are manifestly
contrary to the terms of the governing instrument or would constitute a serious
breach of trust;
(9) the right of a
judgment creditor of a beneficial owner to seek a charging order under Section
606;
(10) the right of a
beneficial owner to information under Section 608, but the governing instrument
may prescribe the standards for assessing whether information is reasonably
related to the beneficial owner’s ability to enforce its rights as a beneficial
owner, if the standards are not manifestly unreasonable;
(11) the right of a
beneficial owner to bring an action under Section 609, but the governing
instrument may subject the right to additional standards and restrictions
including the requirement that beneficial owners owning a specified amount or
type of beneficial interest join in bringing the action, if the additional
standards and restrictions are not manifestly unreasonable; and
(12) the provisions
pertaining to conversion and merger stated in Sections 701, 704, 705, 708, and 709.
Comment
Principal
Sources – Uniform Trust Code §105 (2000); Revised Uniform Limited Liability
Company Act §110 (2006); Uniform Limited Partnership Act §110 (2001); Uniform
Limited Liability Company Act §103 (1996); Revised Uniform Partnership Act §103
(1997); Uniform Commercial Code §§1-302, 9-603 (2000); Delaware Statutory Trust
Act §3806.
Default
Rules. Paragraphs (a) and (b)
emphasize that the Uniform Statutory Trust Entity Act is primarily a default
statute. Most of the Act’s provisions
may be overridden by the terms of the governing instrument.
Mandatory
Rules. Paragraph (c) schedules the provisions
of this act that are not subject to override in the governing instrument of a
statutory trust. The provisions included
in this schedule are the only rules that have mandatory application to a
statutory trust.
Most of the provisions scheduled in
paragraph (c) concern the rights of nonparties or public filing and notice
requirements. By contrast, with two exceptions
all the provisions of this Act concerning the powers and duties of a trustee,
relations among trustees, and the rights and interests of a beneficial owner may
be overridden or at least altered by the terms of the governing
instrument. The first exception is the
mandatory prohibition of indemnification, advancement, or exoneration for
conduct involving bad faith, willful misconduct, or reckless indifference in paragraph
(c)(7). This exception is familiar trust
law. See Restatement (Second) of Trusts
§222 (1959); George G. Bogert &
George T. Bogert, The Law of Trusts and
Trustees §542 (rev. 2d ed. 1993); Uniform Trust Code §1008 (2000). See
also John H. Langbein, Mandatory Rules in the Law of Trusts, 98 Nw. U.L. Rev.
1105, 1121-25 (2004). The Delaware Statutory Trust Act likewise
limits the permissible scope of exoneration.
See Delaware Statutory Trust Act §3806(e), which provides that the
“governing instrument may provide for the limitation or elimination of any and
all liabilities for breach of contract and breach of duty (including fiduciary
duties) of a trustee . . . ; provided, that the governing instrument may not
eliminate the implied contractual covenant of good faith and fair dealing.” Limitations on permissible exoneration are
also familiar corporate and alternative entity law. See, e.g., Delaware General Corporation Law
§102(b)(7); Delaware Limited Liability Company Act §18-1101; [citation to MBCA 2.02(b)(4) and/or
other uniform acts to come].
The second exception is contained in
paragraph (c)(8), which makes mandatory the invalidity under Section 510(c) of
a direction to a trustee or other person that is manifestly contrary to the
terms of the governing instrument or would constitute a serious breach of
fiduciary duty. The reference to serious
breach of fiduciary duty is designed to exclude an inconsequential, immaterial,
or technical breach that does not harm a beneficial owner. For some purposes, trust law distinguishes
between serious and not serious breaches of trust. See, e.g., Uniform Trust Code §706(b)(1)
(2000); 2 Austin W. Scott, William F. Fratcher, & Mark L. Ascher, 2 Scott
and Ascher on Trusts §11.10, p. 661 (5th ed. 2006); Restatement (Second) of
Trusts §107 cmt. b (1959). However, the
effect of paragraph (c)(5) is limited by paragraph (c)(4), which allows the
trustee’s fiduciary duty to be altered by the governing instrument if the
alteration is not manifestly unreasonable.
Paragraphs (c)(5), (c)(6), (c)(10),
and (c)(11) allow the governing instrument to alter the nature of the trustee’s
fiduciary obligation, the right of a trustee to information, the right of a
beneficial owner to information, and the right of a beneficial owner to bring
an action, but only if the alteration is not “manifestly unreasonable.” In opting for the “manifestly unreasonable”
standard instead of Delaware’s “good faith and fair dealing” formulation, see
Delaware Statutory Trust Act §3806(c) and (e), the drafting committee took
notice of the use of the term “manifestly unreasonable” in Revised Uniform
Limited Liability Company Act §110(d) (2006); Uniform Limited Partnership Act
§110(b) (2001), Revised Uniform Partnership Act §103(b) (1997), Uniform Limited
Liability Company Act §103(b) (1996), and intended a similar meaning here. See Mark J. Loewenstein, Fiduciary Duties and
Unincorporated Business Entities: In
Defense of the “Manifestly Unreasonable” Standard, 41 Tulsa L. Rev. 411 (2006).
Relationship
to Mandatory Rules and the Uniform Trust Code. Section 105(a) provides that the law of this
state pertaining to common-law trusts supplements this act. However, Section 105(b) provides that, except
for the mandatory rules scheduled above in Section 103(c), the governing
instrument of a statutory trust may override or modify the application to the
statutory trust of any rule pertaining to common-law trusts. Accordingly, in an enacting jurisdiction that
has also enacted the Uniform Trust Code (UTC), the UTC will apply to a statutory
trust, but only to the extent that the Code’s provisions are not displaced by
this act or the governing instrument. No
provision of the UTC, including the rules stated in UTC §105 that are mandatory
with respect to a common-law trust, is mandatory with respect to a statutory
trust. Likewise, any common law rule that
is mandatory with respect to a common-law trust may nonetheless be overridden
with respect to a statutory trust by the governing instrument of the statutory
trust. In sum, the governing instrument
of a statutory trust may override or alter any rule of trust law other than
those scheduled in §103(c) of this act.
To prevent evasion of the public
policy limitations on donative transfers that underpin the mandatory rules
applicable to a common-law trust, see John
H. Langbein, Mandatory Rules in the Law of Trusts, 98 Nw. U.L. Rev. 1105 (2004),
Section 302 of this Act provides that a statutory trust may not have “a
prevailingly donative purpose.” For further discussion of the relationship
between this Act, the common law, and the Uniform Trust Code, see the Prefatory
Note to this Act under the heading “Relationship to Common-law trusts and the
Uniform Trust Code” and the comments to Sections 105 and 302.
Registered
Investment Companies. The Investment
Company Act of 1940 (the “1940 Act”) supersedes this Act with respect to a
statutory trust that registers as an investment company. For such a statutory trust the 1940 Act imposes
additional mandatory rules. See, e.g.,
the Comments to Sections 207 (name of statutory trust), ___ (interested
transactions), ___ (indemnification, advancement, and exoneration), ___ (delegation
by trustee), and ___ (action by trustees).
SECTION 104. SCOPE OF GOVERNING INSTRUMENT.
(a) Except as otherwise provided in Section
103(c), a governing instrument may:
(1) provide the means by
which beneficial ownership is determined and evidenced;
(2) limit a beneficial
owner’s right to transfer its beneficial interest;
(3)
provide for one or more series under [Article] 4;
(4) if and to the extent
that voting rights are granted under the governing instrument, include
provisions relating to:
(A) notice
of the time, place, or purpose of any meeting at which any matter is to be
voted on;
(B) waiver
of notice;
(C) action
by consent without a meeting;
(D)
establishment of record dates, quorum requirements, or voting in person, by
proxy, any form of communication that creates a record, telephone, or video
conference, or in any other manner; or
(E) any
other matter with respect to the exercise of the right to vote;
(5) provide for any
action to be taken without the vote or approval of any particular trustee or
beneficial owner, or series of beneficial owners, including:
(A)
amendment of the governing instrument;
(B)
accomplishment of a merger, conversion, or reorganization;
(C) appointment
of one or more trustees;
(D) sale,
lease, exchange, transfer, pledge or other disposition of all or any part of
the assets of the statutory trust or the assets of any series thereof; and
(E) dissolution
of the statutory trust;
(6)
provide for the present or future creation of more than one statutory trust,
including the creation of a future statutory trust to which all or any part of
the assets, liabilities, profits, or losses of any existing statutory trust may
be transferred or exchanged, and for the conversion of beneficial interests in
an existing statutory trust, or series thereof, into beneficial interests in
the separate statutory trust, or series thereof;
(7) provide for the
appointment, election, or engagement of agents or independent contractors of
the statutory trust or delegatees of the trustees, or agents, officers,
employees, managers, committees, or other persons that may manage the business
and affairs of the statutory trust, which may have such titles and such
relative rights, powers, and duties as the governing instrument provides;
(8) provide rights to
any person, including a person that is not a party to the governing instrument;
(9) provide for the
manner in which the governing instrument may be amended, including by requiring
the approval of a person that is not a party to the instrument or the
satisfaction of specified conditions and, to the extent the instrument provides
for the manner in which it may be amended, provide that it may be amended only
in that manner or as otherwise permitted by law, but the approval of any person
may be waived by the person and these conditions may be waived by all persons
for whose benefit the conditions were intended;
(10) provide that a
person becomes a beneficial owner, acquires a beneficial interest, and is bound
by the governing instrument if the person complies with the conditions for
becoming a beneficial owner set forth in the governing instrument such as
payment to the statutory trust or to a previous beneficial owner;
(11) provide that a
person may comply with paragraph (10) by a representative authorized by the
person orally, in a record, or by conduct;
(12) provide that the
statutory trust or the trustees, acting for the statutory trust, hold beneficial
ownership of any income earned on securities held by the statutory trust that
are issued by any business entity formed, organized, or existing under the laws
of any jurisdiction; and
(13) provide for the
establishment of record dates.
(b) The governing instrument may
include one or more instruments, agreements, declarations, bylaws, or other
records and refer to or incorporate any record containing provisions relating
to the governance of the affairs of the statutory trust and the conduct of its
business.
Comment
Principal
Sources – Scattered sections of the Delaware and Connecticut
Statutory Trust Acts.
The
unusual principal sources citation reflects the drafting committee’s decision
to collect in a single section various permissive rules regarding the scope of
the governing instrument that are scattered throughout the Delaware and
Connecticut Statutory Trust Acts. The
main exception concerns the allowable remedies for a beneficial owner’s breach
in Section 603(c).
[Comment
to be expanded to explain that this section implements Section 103(b) without
limiting the generality of 103(b).] The
drafting committee concluded that the demand of third parties and transactional
planners to see language that expressly authorizes specific terms justified
inclusion of a detailed list in addition to the broad statement of freedom of
contract in Sections 103(a)-(b) and 106.
Statutory confirmation reduces transaction costs by resolving
doubts in practice over the permissibility of such provisions. Similar
reasoning underlies the provision of a detailed schedule of powers in Uniform
Trust Code §816 (2000) in addition to the broad general statement in Uniform
Trust Code §815.
SECTION 105. APPLICABILITY OF TRUST LAW.
(a) The law of this state pertaining
to common-law trusts supplements this [act].
(b) Except as otherwise provided in
section 103(c), the governing instrument may override or modify application to
the statutory trust of any law of this state pertaining to common-law trusts.
Comment
Principal
Sources – Uniform Trust Code §106 (2000); Delaware Statutory Trust Act
§3809; Connecticut Statutory Trust Act §34-519.
Trust
Law Supplements this Act. Paragraph
(a) provides that state trust law supplements this Act and the terms of the governing
instrument. In looking to trust law to supplement
this act and the governing instrument, the drafting committee was strongly
influenced by the preference for trust
law among existing users of statutory trusts.
This preference is evidenced by the popularity of the Delaware Statutory
Trust Act, which likewise looks to trust law, in comparison to the business
trust acts (such as those in Arizona, Indiana, Kansas, Mississippi, Montana,
Oregon, Tennessee, Washington, and West Virginia) that look to corporate law. See Robert H. Sitkoff, The Rise of the
Statutory Business Trust [in progress].
No
Mandatory Rules Other Than Those Scheduled in Section 103(c). Paragraph (b) confirms that, except for
the mandatory rules scheduled in §103(c), the governing instrument may override
any rule or law pertaining to common-law trusts that would otherwise be
applicable to a statutory trust under paragraph (a). For further discussion, see the comment to
Section 103 under the heading “Relationship to Mandatory Rules and the
Uniform Trust Code.”
Relationship
to the Uniform Trust Code. In an enacting jurisdiction that has also
enacted the Uniform Trust Code, the joint effect of paragraphs (a) and (b) is
to make the Code applicable to a statutory trust, but only to the extent that
the Code’s provisions—including the mandatory rules scheduled in UTC §105—are
not displaced by this act or the trust’s governing instrument. For further discussion, see the comment to
Section 103 under the heading “Relationship to Mandatory Rules and the
Uniform Trust Code.”
Remedies. The rules pertaining to common-law trusts
that, unless the governing instrument provides otherwise, are absorbed by this
Section for application to a statutory trust include a well-developed law of
remedies for breach of trust. See 4 Austin
Wakeman Scott, William F. Fratcher, & Mark L. Ascher, 2 Scott and Ascher on
Trusts §24.9 (5th ed. 2006); Uniform Trust Code §1002 (2000). However, when a breach of trust injures the
trust rather than a beneficial owner directly, such remedies are properly
sought in a derivative suit under Section 609 rather than a direct suit by the
beneficiary because a statutory trust is itself an entity. See generally ALI Principles of Corporate
Governance §7.01 (1994).
SECTION 106. RULES OF CONSTRUCTION.
(a) This [act] must be liberally
construed to give maximum effect to the principle of freedom of contract and to
the enforceability of governing instruments.
(b) The presumption that a civil
statute in derogation of the common law is construed strictly does not apply to
this [act].
Comment
Principal
Sources – Delaware Statutory Trust Act §3825; Connecticut Statutory Trust
Act §34-546; Uniform Statute and Rule Construction Act
§18 (1995).
Paragraph (a) emphasizes the freedom of contract afforded
to transactional planners by the Uniform Statutory Trust Entity Act, which is
primarily a default statute. The only
mandatory rules applicable to a statutory trust are those scheduled in section
103(c). The drafting committee contemplated
that section 106(a) would apply to the construction of section 103(c).
Paragraph
(b) admonishes the courts not to apply to this Act the canon of
construction that statutes in derogation of the common law are to be strictly
construed. The drafting committee
included this admonition because several of this Act’s provisions are designed
specifically to reject the application to a statutory trust of one or more common-law
trust principles. See, e.g., Sections [____]. Those provisions, which
deliberately derogate the common law, should be interpreted in accord with that
purpose.
SECTION 201. CERTIFICATE OF TRUST.
(a) To form a statutory trust, a person
must deliver a certificate of trust to the [Secretary of State] for
filing.
(b) A certificate of trust must
contain:
(1) the name of the statutory
trust, which must comply with Section 207;
(2) the street and
mailing addresses of the designated office of the trust;
(3) the name and street
and mailing address of the initial agent of the trust for service of process;
and
(4) notice whether the
trust may have one or more series under Section 401.
(c) A certificate of trust may
contain any provision in addition to that required by subsection (b) except as otherwise
provided in Section 103(c).
(d) Except as otherwise provided in
Section 204(c), a statutory trust is formed when a certificate of trust that
complies with subsection (b) is filed by the [Secretary of State].
(e) If a provision of a trust
instrument is inconsistent with the filed certificate of trust, a filed
statement of cancellation or change, or filed articles of conversion or merger,
the certificate of trust, statement of cancellation, or change or articles of
conversion or merger prevails.
Comment
Principal
Sources – Uniform Limited Partnership Act §201 (2001); Delaware Statutory
Trust Act §3810; Connecticut Statutory Trust Act §34-503.
Unlike
a common-law trust, a statutory trust is a creature of statute that requires a
filing with the state to come into existence.
Filing rules are typical of limited liability entities. Such filing rules serve a notice function,
alerting interested parties to creation and existence of a new limited
liability juridical entity. See Section 204(b),
which entitles any person to a certified copy of a filing made pursuant to this
act.
A
statutory trust comes into existence only if (1) a certificate of trust is
prepared and delivered to the specified public official for filing, and (2) the
public official files the certificate.
(For more on the meaning of “filing,” see Section 204 and the comment
thereto.) The certificate of trust
provides notice to interested third parties of the existence of the statutory
trust and the identification of the statutory trust’s initial agent for service
of process. Pursuant to Section 40_, the
certificate of trust also puts third parties on notice if the statutory trust
further segregates its assets and liabilities by creating one or more series.
Although
formed by making a public filing, a statutory trust is also a creature of
contract. As such, it will be possible,
though improper, for the trust instrument to be inconsistent with the
certificate of trust or other public filings relating to the statutory trust. Paragraph (d) provides that in such
circumstances the public filing controls.
Under
Section 103(c)(1), this Section is not subject to override by the governing
instrument.
SECTION 202. AMENDMENT OR RESTATEMENT OF CERTIFICATE OF TRUST.
(a) To amend its certificate of
trust, a statutory trust must deliver to the [Secretary of State] for filing an
amendment, articles of conversion, or articles of merger stating:
(1) the name of the trust;
(2) the date of filing
of its initial certificate; and
(3) the changes to the
certificate.
(b) A trustee that knows or has
reason to know that any information in a filed certificate of trust was incorrect
when the certificate was filed or has become incorrect shall promptly:
(1) cause the
certificate to be amended; or
(2) if appropriate,
deliver to the [Secretary of State] for filing a statement of correction.
(c) A restated certificate of statutory
trust must be delivered to the [Secretary of State] for filing in the same manner
as an amendment.
(d) An amended or restated
certificate is effective as provided in Section 204(c).
Comment
Principal
Sources – Uniform Limited Partnership Act §202 (2001); Delaware Statutory
Trust Act §3810; Connecticut Statutory Trust Act §34-503.
Paragraph (a) provides a mechanism
for updating a statutory trust’s filed certificate of trust. Paragraph (b) imposes an obligation directly
on the trustee rather than on the statutory trust.
Under Section 103(c)(1), this
Section is not subject to override by the governing instrument.
SECTION 203. SIGNING OF RECORDS.
(a)
A record delivered by the statutory trust to the [Secretary of
State] for filing pursuant to this [act] must be signed by at least one of the
trustees.
(b) Any person may sign by an
attorney in fact any record filed pursuant to this [act].
Comment
Principal
Sources – Uniform Limited Partnership Act §204 (2001); Delaware Statutory
Trust Act §3811; Connecticut Statutory Trust Act §34-504.
Paragraph (b) confirms that the signing
of a public record by a trustee is a delegable act.
Under Section 103(c)(1), this
Section is not subject to override by the governing instrument.
SECTION 204. DELIVERY TO AND FILING OF RECORDS BY
[SECRETARY OF STATE]; EFFECTIVE TIME AND DATE.
(a) A record authorized or required
to be delivered to the [Secretary of State] for filing under this [act] must be
captioned to describe the record’s purpose, be in a medium permitted by the
[Secretary of State], and be delivered to the [Secretary of State]. If all filing fees have been paid, unless the
[Secretary of State] determines that a record does not comply with the filing
requirements of this [act], the [Secretary of State] shall file the record and make
available a copy of the filed record to the person on whose behalf the record
was filed.
(b) Upon request and payment of a
fee, the [Secretary of State] shall send to any person a certified copy of a record
filed in the office of the [Secretary of State] pursuant to this [act].
(c) Except as otherwise provided in
Sections 205 and 212, a record delivered to the [Secretary of State] for filing
under this [act] may specify an effective time and a delayed effective
date. Except as otherwise provided in
this [act], a record filed by the [Secretary of State] is effective:
(1) if the record does
not specify an effective time or delayed effective date, on the date and at the
time the record is filed as evidenced by the [Secretary of State’s] endorsement
of the date and time on the record;
(2) if the record
specifies an effective time but not a delayed effective date, on the date the
record is filed at the time specified in the record;
(3) if the record
specifies a delayed effective date but not an effective time, at 12:01 a.m. on
the earlier of:
(A) the
specified date; or
(B) the 90th
day after the record is filed; or
(4) if the record
specifies an effective time and a delayed effective date, at the specified time
on the earlier of:
(A) the
specified date; or
(B) the 90th
day after the record is filed.
Comment
Principal
Sources – Uniform Limited Partnership Act §206 (2001); Delaware Statutory
Trust Act §3812; Connecticut Statutory Trust Act §34-505.
For a record prepared by a private
person to become part of the public record under this Act, (1) someone must put
a properly prepared version of the record into the possession of the public
official specified in the Act as the appropriate filing officer, and (2) the
filing officer must determine that the record complies with the filing requirements
of this Act and then officially make the record part of the public record. This Act refers to the first step as “delivery
to the [Secretary of State] for filing” and refers to the second step as “filing.” Thus, under this Act “filing” is an official
act.
Under paragraph (a), the caption
need only indicate the title of the record—for example, “Certificate of Trust”
or “Statement of Change for Statutory Trust.”
Filing officers typically note on a filed record the fact, date, and
time of filing. Copies provided by the
filing officer under paragraph (a) should contain that notation. This Act does not provide a remedy if the
filing officer wrongfully fails or refuses to file a record.
Paragraph (c) allows most records to
have a delayed effective date, up to 90 days after the date the record is filed
by the filing officer. A record
specifying a longer delay will not be rejected.
Instead, under paragraph (c)(3) and (4), the delayed effective date is
adjusted by operation of law to the “90th day after the record is filed.” This Act does not require the filing officer
to notify anyone of the adjustment.
Consistent with the existing
statutory trust acts, but inconsistent with most corporate codes, this Act
makes no provision for collecting a franchise tax. See generally Marcel Kahan & Ehud Kamar,
Price Discrimination in the Market for Corporate Law, 86 Cornell L. Rev. 1205, 1218-33 (2001).
Under Section 103(c)(1), this
Section is not subject to override by the governing instrument.
SECTION 205. CORRECTING FILED RECORD.
(a) A statutory trust or qualified foreign
statutory trust shall deliver to the [Secretary of State] for filing a
statement of correction to correct a filed record if at the time of filing the
record contained incorrect information or was defectively or erroneously
signed.
(b) A statement of correction under
subsection (a) may not state a delayed effective date and must:
(1) describe the record
to be corrected, including its filing date, or attach a copy of the record as
filed;
(2) specify the
incorrect information and the reason it is incorrect or the manner in which the
signing was defective or erroneous; and
(3) correct the
incorrect information or defective or erroneous signature.
(c) When filed by the [Secretary of
State], a statement of correction under subsection (a) is effective:
(1) except as otherwise
provided in paragraph (2), retroactively as of the effective date of the record
the statement corrects; or
(2) with respect to
persons that relied on the uncorrected record and would be adversely affected
by the correction, when filed.
Comment
Principal
Source – Uniform Limited Partnership Act §207 (2001).
A statement of correction is
appropriate only to correct inaccuracies that existed or signatures that were
defective “at the time of filing.” A
statement of correction may not be used to amend or revise a record that was
accurate when filed but has become inaccurate as a result of subsequent events.
Under paragraph (c), a statement of
correction “relates back” by way of retroactive application except against
persons that have relied on the uncorrected record and would be adversely
affected if the correction related back.
Under Section 103(c)(1), this
Section is not subject to override by the governing instrument.
SECTION 206. CERTIFICATE OF GOOD STANDING.
(a) The [Secretary of State], upon
request and payment of the requisite fee, shall furnish to the person making
the request a certificate of good standing for a statutory trust if the records
filed in the [office of the Secretary of State] show that:
(1) the [Secretary of
State] has filed a certificate of trust;
(2) all fees and
penalties due under this [act] or other law to the [Secretary of State] have
been paid;
(3) the most recent
annual report of the trust required by Section 215 has been filed by the
[Secretary of State];
(4) a statement of
cancellation or dissolution has not be filed by the [Secretary of State]; and
(5) the [Secretary of
State] has not filed a notice of administrative dissolution under Section 805
or, if the [Secretary of State] has filed such a notice, that the [Secretary of
State] has filed a declaration of reinstatement under Section 806.
(b) A certificate of good standing
must state:
(1) the name of the
trust;
(2) that the trust was
formed under the laws of this state and the date of formation; and
(3) that the conditions
stated in subsection (a) have been satisfied.
(c) Subject to any qualification
stated in the certificate, a certificate of good standing issued by the
[Secretary of State] may be relied upon as conclusive evidence that the statutory
trust is in good standing as of the date of the certificate.
Comment
Principal
Source – Uniform Limited Partnership Act §209 (2001).
A certificate of good standing can
reveal only information present in the public record. Under this Act significant information
bearing on the status of a statutory trust may be outside the public record. [To
be modified with new article 9: Section ___
provides for the issuance of a certificate of registration for a qualified
foreign statutory trust.]
Under Section 103(c)(1), this
Section is not subject to override by the governing instrument.
SECTION 207. NAME OF STATUTORY TRUST.
(a) Unless authorized by the
[Secretary of State] under subsection (c), the name of a statutory trust must
be distinguishable in the records of the [Secretary of State] from:
(1) the name of any
person that is already incorporated, organized, formed, or authorized to do
business in this state; and
(2) any name reserved under
Section 210 [or other state laws allowing the reservation or registration of
business names, including fictitious or assumed name statutes].
(b) The name of a statutory trust
may contain the words: “company”, “association”, “club”, “foundation”, “fund”,
“institute”, “society”, “union”, “syndicate”, “limited”, or “trust”, or words
or abbreviations of similar import, and may contain the name of a beneficial
owner, a trustee, or any other person.
(c) A statutory trust may apply to
the [Secretary of State] for authorization to use a name that does not comply
with subsection (a). The [Secretary of
State] shall authorize use of the name applied for if, as to a conflicting name:
(1) the present user,
registrant, or owner of the conflicting name consents in a signed record to the
use and submits an undertaking in a form satisfactory to the [Secretary of
State] to dissolve or to change the conflicting name to a name that complies
with subsection (a) and is distinguishable in the records of the [Secretary of
State] from the name applied for;
(2) the applicant
delivers to the [Secretary of State] a certified copy of the final judgment of
a court of competent jurisdiction establishing the applicant’s right to use in this
state the name applied for; or
(3) the applicant
delivers to the [Secretary of State] proof satisfactory to the [Secretary of
State] that the present user, registrant, or owner of the conflicting name:
(A) has
merged with the applicant;
(B) has been
converted into the applicant; or
(C) has
transferred substantially all of its assets, including the conflicting name, to
the applicant.
(d) Subject to Section ___, this
section applies to any foreign statutory trust doing business in this state,
having a certificate of qualification to do business in this state, or applying
for a certificate of qualification.
Comment
Principal
Sources – Uniform Limited Partnership Act §108 (2001); Delaware Statutory
Trust Act §3814.
The drafting committee opted not to
require that the name of a statutory trust contain a traditional limited
liability appellation. Such a
requirement would be inconsistent with current practice under the Delaware Act,
though the drafting committee contemplated that an enacting jurisdiction with a
strong policy regarding names of limited liability entities might modify this
Section accordingly. Moreover, other
regulatory law will sometimes limit the range of permissible names
notwithstanding this Section. For
example, the names of mutual funds typically do not contain a limited liability
appellation, but Section 35(d) of the Investment Company Act of 1940, which is
applicable to a statutory trust that is a registered investment company,
prohibits “materially deceptive or misleading” names. 15 U.S.C. §80a-34(d). See also Rule 35d-1, 17 C.F.R. §270.35d-1
(listing types of names that have been deemed “materially deceptive or misleading”).
Under Section 103(c)(1), this
Section is not subject to override by the governing instrument.
SECTION 208. RESERVATION OF NAME.
(a)
The exclusive right to the use of a name that complies with Section 207 may be
reserved by:
(1) a person intending
to form a statutory trust under this [act] and adopt the name;
(2) a statutory trust or
a qualified foreign statutory trust intending to adopt the name;
(3)
a foreign statutory trust intending to obtain a certificate of qualification to
do business in this state and adopt the name;
(4) a person intending
to organize a foreign statutory trust and intending to have it obtain a certificate
of qualification to do business in this state and adopt the name;
(5)
a foreign statutory trust formed under the name; or
(6)
a foreign statutory trust formed under a name that does not comply with Section
207, but the name reserved under this paragraph may differ from the foreign statutory
trust’s name only to the extent necessary to comply with Section 207.
(b)
A person may apply to reserve a name under subsection (a) by delivering
to the [Secretary of State] for filing an application that states the name to
be reserved and the paragraph of subsection (a) that applies. If the [Secretary of State] finds that the
name is available for use by the applicant, the [Secretary of State] shall file
a statement of name reservation and thereby reserve the name for the exclusive
use of the applicant for a 120-day period.
(c)
An applicant that has reserved a name pursuant to subsection (b) may
reserve the same name for additional 120-day periods. A person having a current reservation for a
name may not apply for another 120-day period for the same name until 90 days
have elapsed under the current reservation.
(d)
A person that has reserved a name under this section may deliver to the
[Secretary of State] for filing:
(1) a notice of transfer
that states the reserved name, the name and street and mailing addresses of
some other person to which the reservation is to be transferred, and the
paragraph of subsection (a) that applies to the other person; or
(2) a notice of
termination of the person’s reservation.
(e) A transfer or termination under
subsection (d) is effective as provided in Section 204(c).
Comment
Principal
source – Uniform Limited Partnership Act §109 (2001).
Under Section 103(c)(1), this
Section is not subject to override by the governing instrument.
SECTION 209. AGENT FOR SERVICE OF PROCESS.
(a) A statutory trust or a qualified
foreign statutory trust shall designate and continuously maintain in this state
an agent for service of process.
(b) An agent for service of process
of a statutory trust or qualified foreign statutory trust must be an individual
who is a resident of this state or a person incorporated, organized, formed, or
authorized to do business in this state which maintains an office in this
state.
Comment
Principal
Sources – Uniform Limited Partnership Act §114 (2001); Delaware Statutory
Trust Act §3804; Connecticut Statutory Trust Act §34-507.
Under Section 201(a)(3), the initial
designation of a statutory trust’s agent for service of process is made in the
original certificate of trust. Under
Section 802(a)(3), the initial designation of a foreign statutory trust’s agent
for service of process is made in the original application for a certificate of
qualification [to be reworked after
new article 9]. The initial designation may be changed
pursuant to a statement of change under Section 210, by an amendment to the
certificate of trust under Section 202, or by an annual report under Section 213(e).
Under Section 103(c)(1), this
Section is not subject to override by the governing instrument.
SECTION 210. CHANGE OF DESIGNATED OFFICE OR AGENT FOR
SERVICE OF PROCESS.
A statutory trust or qualified foreign
statutory trust may change its agent for service of process, the address of its
agent for service of process, or its designated office by delivering to the
[Secretary of State] for filing a statement of change containing:
(1) the name of the trust;
(2) the street and mailing addresses
of the current designated office of the trust;
(3) if the designated office is to
be changed, the street and mailing addresses of the new designated office;
(4) the name and street and mailing
addresses of the current agent of the trust for service of process; and
(5) if the current agent for service
of process or an address of the agent is to be changed, the new information.
Comment
Principal
Source – Uniform Limited Partnership Act §115 (2001).
Paragraph (a) uses “may” rather than
“must” because a statutory trust may also change the information by an
amendment to its certificate of trust under Section 202 and a qualified foreign
statutory trust may also change the information by an amendment to its certificate
of qualification under Section ___[article 9 problem]. Further, if the information currently in the
public record is not inaccurate, a statutory trust or qualified foreign
statutory trust may change the information in an annual report under Section 213(e).
Under Section 103(c)(1), this
Section is not subject to override by the governing instrument.
SECTION 211. RESIGNATION OF AGENT FOR SERVICE OF PROCESS.
(a) To resign as an agent for
service of process of a statutory trust or qualified foreign statutory trust,
the agent must deliver to the [Secretary of State] for filing a statement of
resignation containing:
(1) the name of the
trust;
(2) the name of the
agent;
(3) a statement that the
agent resigns as agent for service of process.
(b) The resigning agent must transmit
a copy of the statement of resignation to the designated office of the
statutory trust or qualified foreign statutory trust and another copy to the
principal office if the address of the office appears in the records of the
[Secretary of State] and is different from the address of the designated
office.
(c) An agency for service of process
is terminated on the 31st day after the [Secretary of State] files the
statement of resignation under subsection (a).
Comment
Principal
Source – Uniform Limited Partnership Act §116 (2001).
This section provides the exclusive
means for an agent to resign without cooperation from the statutory trust or qualified
foreign statutory trust and the only way the agent, rather than the statutory
trust or foreign statutory trust, can effect a change in the public
record. Unlike most records authorized
or required to be delivered to the filing officer for filing under this Act, a
statement of resignation may not provide for a delayed effective date.
Paragraph (c) mandates the effective
date of the agent’s resignation. An
effective date included in a statement of resignation is disregarded. To satisfy Section 212(a), the statutory
trust or qualified foreign statutory trust must designate a new agent for
service of process before the effective date.
If the statutory trust or foreign statutory trust fails to do so, under
Section 212 service on the statutory trust or foreign statutory trust may be
made on the Secretary of State.
Under Section 103(c)(1), this
Section is not subject to override by the governing instrument.
SECTION 212. SERVICE OF PROCESS.
(a) An agent for service of process
appointed by a statutory trust or qualified foreign statutory trust is an agent
of the trust for service of any process, notice, or demand required or
permitted by law to be served upon the trust.
(b) If a statutory trust or qualified
foreign statutory trust does not appoint or maintain an agent for service of
process in this state or the agent for service of process cannot with
reasonable diligence be found at the agent’s address on file with the
[Secretary of State], the [Secretary of State] is an agent of the trust for
service of process.
(c) Service of any process, notice,
or demand on the [Secretary of State] under subsection (b) may be made by
delivering to and leaving with the [Secretary of State] two copies of the
process, notice, or demand. If a
process, notice, or demand is served on the [Secretary of State], the
[Secretary of State] shall forward one of the copies by registered or certified
mail, return receipt requested, to the statutory trust or qualified foreign
statutory trust at its designated office.
(d) Service is effected at the
earliest of:
(1) the date the agent
for the statutory trust or qualified foreign statutory trust receives the
process, notice, or demand;
(2) the date shown on
the return receipt, if signed on behalf of the trust; or
(3) five days after the
process, notice, or demand is deposited with the United States Postal Service
by the [Secretary of State], if correctly addressed and with sufficient postage.
(e) The [Secretary of State] shall
keep a record of each process, notice, and demand served pursuant to this
section and record the time of, and the action taken regarding, the service.
(f) This section does not affect the
right to serve process, notice, or demand in any other manner provided by law.
Comment
Principal
Source – Uniform Limited Partnership Act §117 (2001).
Paragraph (f) confirms that the
authority of the Secretary of State to accept process under a state long-arm
statute exists independently of paragraphs (b) through (e) of this Section.
Under Section 103(c)(1), this
Section is not subject to override by the governing instrument.
SECTION 213. ANNUAL REPORT FOR [SECRETARY OF STATE].
(a) A statutory trust or qualified
foreign statutory trust must deliver to the [Secretary of State] for filing an
annual report that contains the name of the trust and:
(1) in the case of a
statutory trust:
(A) the
street and mailing addresses of its designated office; and
(B) the name
and street and mailing addresses of its agent for service of process; or
(2) in the case of a qualified
foreign statutory trust:
(A) any
alternate name adopted under Section 706(a);
(B) the name
of the state or other jurisdiction under whose law the trust is formed; and
(C) the
street and mailing addresses of its principal office and, if the laws of the
jurisdiction under which the trust is formed require it to maintain an office
in that jurisdiction, the street and mailing addresses of that office; and
(D) the name
and street and mailing addresses of its agent for service of process in this
state.
(b) Information in an annual report
under this section must be current as of the date the annual report is
delivered to the [Secretary of State] for filing.
(c) The first annual report under
this section must be delivered to the [Secretary of State] between [January 1
and April 1] of the year following the calendar year in which a statutory trust
was formed or a qualified foreign statutory trust was authorized to do business
in this State. An annual report must be
delivered to the [Secretary of State] between [January 1 and April 1] of each
subsequent calendar year.
(d) If an annual report does not contain
the information required in subsection (a), the [Secretary of State] shall
promptly notify the reporting trust and return the report to it for
correction. If the report is corrected
to contain the information required in subsection (a) and delivered to the
[Secretary of State] within 30 days after the date of the notice, it is timely
delivered.
(e)
If an annual report under this section contains an address of a
designated office or the name or address of an agent for service of process
which differs from the information shown in the records of the [Secretary of
State] immediately before the filing, the differing information in the annual
report is considered a statement of change under Section 210.
Comment
Source
– Uniform Limited Partnership Act §210 (2001).
A statutory trust that fails to
comply with this section is subject to administrative dissolution. See Section 805.
Under Section 103(c)(1), this
Section is not subject to override by the governing instrument.
SECTION 301. STATUTORY TRUST AUTHORIZED. A statutory trust is an entity separate
from its trustees and beneficial owners.
Comment
Principal
Sources – Delaware Statutory Trust Act §§3810; Connecticut Statutory Trust Act
§§34-502.
Because this Section implements an
entity conception of the statutory trust, it confirms that any prior judicial
decision that holds that a common law business trust violates the state’s
corporate law, trust law, or public policy is not applicable to a statutory
trust created under this Act. Examples
of such decisions, which reflect the now outmoded concern that a business trust
could be used to evade regulatory limitations on the corporate form, are collected
in Robert H. Sitkoff, The Rise of the Statutory Business Trust [in
progress].
SECTION
302. PERMISSIBLE PURPOSES. A
statutory trust may have any lawful purpose except a prevailingly donative
purpose.
Comment
Principal
Sources – Delaware Statutory Trust Act §3801; Connecticut Statutory Trust
Act §34-502a.
Under this Section, a statutory
trust may be formed for “any lawful purpose except for a prevailingly donative
purpose.” Thus, in addition to use in a
commercial transaction, a statutory trust may be used in a custodial or other
context that might not be for profit. See
Section 307. The limitation to “lawful”
activity addresses the concern that some states limit the type of organizations
that may be used in regulated industries such as banking and insurance.
The exclusion of “a prevailingly
donative purpose” addresses the concern
that a statutory trust might be used in an estate planning or other donative
context to evade public policy limitations on donative transfers and common-law
trusts. See, e.g., Uniform Trust Code §105 (2000); John H. Langbein, Mandatory
Rules in the Law of Trusts, 98 Nw. U.L. Rev. 1105 (2004). The
drafting committee declined the suggestion to prohibit a statutory trusts from
having a charitable purpose on the ground that a statutory trust with a charitable
purpose would be covered by existing regulatory law applicable to charitable
entities. See Marion R. Fremont-Smith,
Governing Nonprofit Organizations: Federal and State Law and Regulation 187-427
(2004).
By
prohibiting a statutory trust from having “a prevailingly donative purpose,”
the drafting committee avoided the necessity of designing a comprehensive
schedule of mandatory rules applicable only to statutory trusts with such a
purpose, a task made more difficult by the increasing differentiation among the
states on these matters, particularly with respect to the rights of the
settlor’s creditors in a self-settled trust and the continued application of
the Rule Against Perpetuities to interests held in trust. See Robert H. Sitkoff & Max M. Schanzenbach,
Jurisdictional Competition for Trust Funds: An Empirical Analysis of
Perpetuities and Taxes, 115 Yale L.J. 356 (2005).
Examples of mandatory rules applicable
to common-law trusts that drafters might otherwise try to avoid by using a
statutory trust include the following:
·
the duty of a trustee to act in good faith and
in accordance with the terms and purposes of the trust and the interests of the
beneficiaries;
·
the requirement that a trust and its terms be
for the benefit of one or more ascertainable beneficiaries, and that the trust
have a purpose that is lawful, not contrary to public
policy, and possible to achieve;
·
the power of the court
to modify or terminate a trust;
·
the effect of a
spendthrift provision and the rights of the settlor’s and the beneficiary’s
creditors and assignees to reach the assets of a trust;
·
the power of the court
to adjust a trustee’s compensation specified in the terms of the trust which is
unreasonably low or high;
·
the power of the court
to remove a trustee for a serious breach of trust;
·
the duty of the
trustee to give information and make reports concerning the administration of
the trust to the beneficiary;
·
the effect of an exoneration
clause that purports to limit or eliminate the duties or liabilities of a trustee
to a beneficiary;
·
the rights of a party,
other than a trustee or beneficiary, that transacts with the trustee in the
trustee’s capacity as such;
·
the rules against
perpetuities, accumulations of income, and suspension of the power of
alienation; and
·
the power of the court
to take such action and exercise such jurisdiction as may be necessary in the
interests of justice.
Most of the foregoing rules are referenced in Uniform Trust
Code §105 (2000), the Code’s schedule of mandatory rules. For discussion of why the rules that are
mandatory with respect to a common-law trust are not mandatory with respect to
a statutory trust, see the comments to Sections 103 and 105.
[Discussion
of series purpose provision and cross-reference to come.]
Under Section 103(c)(2), this
Section is not subject to override by the governing instrument.
SECTION 303. STATUTORY TRUST SOLELY LIABLE FOR DEBTS,
OBLIGATIONS, AND OTHER LIABILITIES OF STATUTORY TRUST. A
debt, obligation, or other liability of a statutory trust is solely a debt, obligation,
or other liability of the trust. A
beneficial owner, trustee, agent of the trust, or agent of the trustee is not
personally liable, directly or indirectly, by way of contribution or otherwise,
for a debt, obligation, or other liability of the trust solely by reason of
being or acting as a trustee, beneficial owner, agent of the trust, or agent of
the trustee.
Comment
Principal Sources – Delaware Statutory
Trust Act §3803; Connecticut Statutory trust Act §34-523; Revised Uniform
Partnership Act §306 (1994); Uniform Limited Liability Company Act §303;
Uniform Limited Partnership Act §§303, 404 (2001); Uniform Trust Code §507
(2000).
This
section implements the concept that the statutory trust is a legal entity
separate from the trustee and beneficial owner in three ways. First, this section confirms that a
trustee, as a manager of the statutory trust, is not liable for the debts,
obligations, and liabilities of the statutory trust. As such, this section overrides the outmoded
common law rule that held the trustee liable for the debts of the trust and
then gave the trustee a right to indemnity out of the trust fund. Compare Restatement (Second) of Trusts §§244,
261 (1959) (stating the old rule), with Uniform Trust Code §1010 (2000)
(eliminating the personal liability of the trustee for debts, obligations, and
liabilities arising in the trustee’s fiduciary capacity). However, nothing in this Section limits the
personal liability of the trustee to the statutory trust for breach of duty
under Section 505. [Connection to series rules and shield to come.]
Second,
this section confirms that the
statutory trust, not the agents of the statutory trust or the trustee, is
liable for the debts, obligations, and liabilities of the trust incurred by an
agent of the trust or the trustee acting on behalf of the trust or the trustee.
Third, this section confirms the
limited liability of a beneficial owner and trustee by providing that the
beneficial owner or trustee of a statutory trust is not liable for the debts,
obligations, or liabilities of the statutory trust. An agent of the beneficial owner or trustee
is likewise not liable for the debts, obligations, or liabilities of the
statutory trust. This section therefore confirms
that the “control test” of Williams v. Inhabitants of Milton, 102 N.E. 355
(Mass. 1913), and Restatement (Second) of Agency §14B (1958), is not applicable
to a statutory trust. Under the control
test, if a beneficial owner of a common law business trust had a say in the
administration of the trust or the right to remove and replace the trustees,
the beneficial owner might be held liable for the debts of the trust. By contrast, under this section a beneficial
owner may participate in the management of the statutory trust without exposure
to liability for the debts of the statutory trust. For discussion of a beneficial owner’s limited
liability under the Delaware Statutory Trust Act, see Wendell Fenton & Eric
A. Mazie, Delaware Statutory Trusts,
in 2 R. Franklin Balotti & Jesse A. Finkelstein, The Delaware Law of Corporations & Business Organizations
§19.3 (3d ed. 2005 Supp.).
SECTION
304. RIGHTS OF BENEFICIAL OWNER AND
TRUSTEE IN TRUST PROPERTY.
(a) A beneficial owner’s beneficial
interest in the statutory trust is personal property regardless of the nature
of the property of the trust. A
beneficial owner has no interest in specific property of the trust.
(b) A creditor of a beneficial owner
or of a trustee does not have the right to obtain possession of, or otherwise
exercise legal or equitable remedies with respect to, the property of the
statutory trust.
Comment
Principal Sources - Delaware Statutory
Trust Act §3805; Connecticut Statutory Trust Act §34-516; Uniform Trust Code
§507 (2000); Revised Uniform Partnership Act §203 (1994); Uniform Limited
Liability Company Act §501 (1996); Uniform Limited Partnership Act §701 (2001).
Paragraph
(b) implements the concept that a statutory trust is an entity separate from
its trustee and beneficial owners by confirming that a creditor of a trustee or
a beneficial owner has no recourse against the property of the statutory
trust.
With
respect to trustees, the rule of this paragraph is familiar from the operation
of common-law trusts. See Uniform Trust
Code §507 (2000); Restatement (Third) of Trusts §42 cmt. c (2003);
Restatement (Second) of Trusts §308 (1959).
The protection afforded by this section is also consistent with that
provided by the bankruptcy law. Property
in which the trustee holds legal title as trustee is not part of the trustee’s
bankruptcy estate. See 11 U.S.C.
§541(d).
With respect to beneficial owners, for
discussion of the parallel provision in the Delaware Statutory Trust Act, see
Wendell Fenton & Eric A. Mazie, Delaware
Statutory Trusts, in 2 R. Franklin Balotti & Jesse A. Finkelstein, The Delaware Law of Corporations &
Business Organizations §19.4, at 19-9 – 19-10 (3d ed. 2005 Supp.). However, [cross-reference
to charging order provision to come.]
For
a general discussion of asset partitioning rules in organizational law, see Henry
Hansmann & Reinier Kraakman, The
Essential Role of Organizational Law, 110 Yale L.J. 387 (2000); Henry
Hansmann & Ugo Mattei, The
Functions of Trust Law: A Comparative Legal and Economic Analysis, 73 N.Y.U. L. Rev. 434
(1998). See also Henry
Hansmann, Reinier Kraakman, & Richard Squire, Law and the Rise of the Firm,
119 Harv. L. Rev. 1333 (2006).
SECTION 305. GOVERNING LAW.
The law of this state governs:
(1) the internal affairs of a
statutory trust;
(2) the liability of a beneficial
owner as beneficial owner and a trustee as trustee for a debt, obligation, or
other liability of a statutory trust or a series thereof; and
(3) the association of property of
the statutory trust to a series thereof and the liability of a series of a statutory
trust with respect to the statutory trust and other series thereof.
Comment
Principal
Sources – Connecticut Statutory Trust Act §34-502; Uniform Limited
Partnership Act §106 (2001); Revised Uniform Limited Liability Company Act §106
(2006).
Under paragraph (1) the internal
affairs of a statutory trust formed under this act are governed by the law of
this state even if the trust operates in other states. Although the term “internal affairs” may be indeterminate at its edges,
the concept certainly includes interpretation and enforcement of the governing
instrument and relations among the trustees, beneficial owners, and the
statutory trust. See Restatement
(Second) of Conflict of Laws §302 cmt. a (1971) (defining “internal affairs”
with reference to corporate law as “the relations inter se of the corporation,
its shareholders, directors, officers or agents”).
Paragraph
(2) supports Sections ___ and ___ by confirming that the liability of a
beneficial owner or a trustee for the debts, obligations, or other liabilities
of the statutory trust is governed by the law of this state. This paragraph is stated separately from
Paragraph (1) because the liability of a beneficial owner or trustee to third
parties is arguably not an internal affair.
See Restatement (Second) of Conflict of Laws §307 (1971) (treating
shareholders’ liability separately from the internal affairs doctrine).
Paragraph
(3) [to come].
Section
___ [article 9 problem] states rules for qualified foreign statutory
trusts that parallel
and are analogous in scope to those of this section.
Under Section 103(c)(3), this
Section is not subject to override by the governing instrument.
SECTION 306. DURATION.
(a) A statutory trust has perpetual existence.
(b) A statutory trust, or any series
thereof, may not be terminated or revoked except in accordance with this [act]
or the terms of the governing instrument.
(c) The death, incapacity,
dissolution, termination, or bankruptcy of a beneficial owner or trustee does
not result in the termination or dissolution of a statutory trust or any series
thereof.
(d) A statutory trust does not
terminate because the same person is the sole trustee and sole beneficial
owner.
Comment
Principal
Sources – Delaware Statutory Trust Act §3808; Connecticut Statutory Trust
Act §34-518.
Following the corporate default rule
of perpetual existence, paragraph (a) provides a default rule of perpetual
existence for a statutory trust. See
also Section 801, which provides for dissolution of a statutory trust only upon
the occurrence of an event or circumstance stated in the governing instrument,
and Section 805, which provides for administrative dissolution. The duration of a common-law trust, by
contrast, is curtailed by the Rule Against Perpetuities. See Restatement (Second) of Property: Donative Transfers § 2.1 (1983). Accordingly, unless the governing instrument
provides otherwise, under this section a statutory trust is exempt from the
Rule Against Perpetuities. Without
taking a position on the policy soundness of the tax-driven movement to abolish
the Rule Against Perpetuities with respect to donative trusts, see Max M.
Schanzenbach & Robert H. Sitkoff, Perpetuities or Taxes? Explaining the
Rise of the Perpetual Trust, 27 Cardozo L. Rev. 2465 (2006), the drafting
committee concluded that the dead-hand worries that underpin the Rule do
not apply to a statutory trust. Under
Section 302, a statutory trust may not have a prevailingly donative purpose.
Paragraph (b) confirms that a
statutory trust may only be terminated in accordance with the terms of this Act
or the governing instrument. Thus,
paragraph (b) overrides the rules of common-law trust termination that would
otherwise be applicable to a statutory trust pursuant to Section 105. Those rules are concerned with mediating the
tension between the donor’s intent and subsequent contrary preferences of the
beneficiaries, see Robert H. Sitkoff, An Agency Costs Theory of Trust Law, 89
Cornell L. Rev. 621, 658-63 (2004), an issue that is not applicable to a
statutory trust because a statutory trust under this Act may not have a
prevailingly donative purpose. Instead,
the drafting committee contemplated that pursuant to Section 104(b)(9) the
governing instrument would provide for termination of the statutory trust or
modification of the governing instrument if such provisions are desirable.
Paragraph (c) confirms that the rule
of partnership law under which a partnership is dissolved upon the death or
incapacity of one of the partners does not apply to a statutory trust or any
series thereof .
Paragraph (d) overrides the
application to a statutory trust under Section 105 of the common law rule of
merger whereby legal and equitable title to the trust property merge and the
trust terminates if the same person is the sole trustee and sole beneficiary. See Restatement (Third) of Trusts §69 (2003);
Restatement (Second) of Trusts §341 (1959); Comment, The Doctrine of Merger as
Applied to Commercial Trusts, 29 Yale L.J. 97 (1919).
SECTION 307. POWER TO HOLD PROPERTY; TITLE TO TRUST
PROPERTY. A statutory trust has the power to hold
or take title to property in its own name, or in the name of a trustee in the
trustee’s capacity as trustee, whether in an active, passive, or custodial
capacity.
Comment
Principal
Source – Delaware Statutory Trust Act §3801; Connecticut Statutory Trust Act §34-502a.
This Section implements the concept
that a statutory trust is an entity separate from its trustee and beneficial
owners by confirming that a statutory trust may transact in its own name. The property of a common-law trust, by
contrast, must be held in the name of the trustee as such.
However,
this section also permits the statutory trust to take title to property in the
name of the trustee in the trustee’s capacity as such even though the trust can
hold property in its own name. The
drafting committee reasoned that this provision would be useful for a statutory
trust that has dealings in a state that has not provided for a statutory trust
entity. Property ownership by a trustee
in the trustee’s capacity as such is familiar from the use of common-law trusts. To police the boundary of the trustee’s
personal assets and the assets of the trust, the common law imposes on the
trustee duties to earmark trust property and not to commingle it with the
trustee’s own. See Uniform Trust Code
§810 (2000); Restatement (Third) of Trusts §84 (2007); Restatement (Second) of
Trusts §179 (1959). The drafting
committee contemplated that under appropriate circumstances Section 505(b)
would be read to require similar conduct by a trustee of a statutory trust that
takes title to property of the statutory trust in the name of the trustee in
the trustee’s capacity as such.
SECTION 308. POWER TO SUE AND BE SUED.
(a) A statutory trust has the power
to sue and be sued in its own name.
(b) Except as otherwise provided in [Article]
4, property of a statutory trust held in the name of the statutory trust or by
the trustee in the trustee’s capacity as trustee is subject to attachment and
execution to satisfy a debt, obligation, or other liability of the trust.
Comment
Principal
Sources – Delaware Statutory Trust Act §§3803-3805; Connecticut Statutory
Trust Act §§34-518, 34-523; Uniform Limited Partnership Act §303 (2001).
Paragraph
(a) implements the concept that a statutory trust is an entity separate
from the trustee and beneficial owner by confirming that a statutory trust has
the power to sue and be sued in its own name.
Paragraph (b) addresses the attachment and execution of a
statutory trust’s property subject to the possibility that the statutory trust
has formed one or more series under Article 4.
SECTION
401. SERIES OF STATUTORY TRUST.
(a) The governing instrument may
provide for designated series of beneficial owners or beneficial interests
having separate rights, powers, or duties with respect to specified property or
obligations of the statutory trust.
(b) A series of a statutory trust is
not an entity separate from the statutory trust.
Comment
Principal
Sources – Delaware Statutory Trust Act §3806.
Paragraph
(a) of this section confirms that a statutory trust may be organized with one
or more series.
Paragraph (b) [discussion of non-entity status to come, including the points that
we are making explicit what is implicit in the Delaware act, that we decided
against specifying entity type powers that are not granted (such as the power
to sue and be sued in its own name) to avoid a negative implication, and that
entity status for tax purposes is a separate question not addressed here].
Under
Section 103(c)(4), paragraph (b) of this Section is not subject to override by
the governing instrument.
SECTION 402. LIABILITY OF SERIES.
(a) Subject to subsection (b), if a
statutory trust has one or more series as provided in Section 401:
(1) a debt, obligation,
or other liability incurred or otherwise existing with respect to the property
of a particular series is enforceable against the property of the series only,
and not against the property of the trust generally or any other series
thereof; and
(2) none of the debts,
obligations, or other liabilities incurred or otherwise existing with respect
to the trust generally or the property of any other series thereof is
enforceable against the property of the series;
(b) Section (a) applies only if:
(1)
records are maintained for the series that reasonably identify the property of
the series, including by specific listing, category, type, quantity, or
computational or allocational formula or procedure, including a percentage or
share of any property, or by any other method where the identity of the
property of the series is objectively determinable; and
(2)
notice of series is set forth in the certificate of trust pursuant to Section
201(b)(4).
(c) For purposes of [Uniform
Fraudulent Transfers Act or other state fraudulent transfer act], the
association, disassociation, or reassociation of property with a series is a
transfer of that property.
Comment
Principal
Sources – Delaware Statutory Trust Act §3804; Delaware Limited Liability
Company Act §18-215.
Paragraph (a) provides that if a
statutory trust creates one or more series under Section 401 and satisfies the
conditions of paragraph (b), the debts, liabilities, and other obligations of a
particular series are enforceable against the property of that series only. In such circumstances, the debts,
liabilities, and other obligations of the trust generally and any other series
thereof are not enforceable against the property of the series. [Discussion
of the common creditor problem and the idea of the trust as a separate bucket
from each series to come.]
Paragraph (b) sets forth two
conditions that must be satisfied before the liability-limiting rules of
paragraph (a) may apply: (1) records
must be maintained that reasonably identify the property of the series, and (2)
notice of the limitation on liabilities of a series must be set forth in the
certificate of trust.
The earmarking requirement of paragraph (b)(1) safeguards the separate
interests of the beneficial owners of each series by clarifying the boundaries
between the property and liabilities of each series. For similar reasons, the earmarking
requirement also protects third parties that deal with a series trust. Third parties are further protected by
paragraph (b)(2), which conditions limited liability across series on notice in
the certificate of trust that the trust might have one or more series.
Failure
to satisfy paragraph (b) exposes the property of one series to the creditors of
another series and the creditors of the trust generally. In such a case, the failure to maintain
separate records would likely amount to a breach of trust under Section 505,
remediable by a beneficial owner in a derivative or direct suit against the
trustee. [further discussion of
trust versus series level buckets to come.]
Paragraph (c) addresses the concern
that [discussion to come].
Under
Section 103(c)(4), paragraphs (b) and (c) of this Section are not subject to
override by the governing instrument.
SECTION 403. GOVERNANCE OF SERIES.
The governing instrument may grant to, or withhold from, all or certain
trustees or beneficial owners, or a specified series of beneficial owners, the
right to vote, separately or with any or all other trustees or beneficial
owners, or series of beneficial owners, on any matter.
Comment
Principal
Sources – [to come].
[Default
rule notation and discussion of section to come.]
SECTION 404. SEPARATE PURPOSE OF
SERIES. A series of a statutory trust may have a
separate purpose from the trust or any other series thereof provided that the
purpose of the series is lawful and not a prevailingly donative purpose.
Comment
Principal
Sources – Delaware Statutory Trust Act §3806.
[discussion
and cross-reference to Section 302 to come.]
Under Section 103(c)(4), this Section
is not subject to override by the governing instrument.
SECTION 405. SERIES TRUST AS INVESTMENT COMPANY. If
a statutory trust is a registered investment company under the Investment
Company Act of 1940, [as amended,] 15 U.S.C. Section 80a-1 et seq., [or any
successor statute thereto,] [and any regulations issued thereunder,] any series
of beneficial interests established by the governing instrument of the trust is
a series preferred in distribution of property or payment of dividends over all
other series with respect to property specifically allocated to the series
under Section 18 of the Investment Company Act of 1940, [as amended,] 15 U.S.C.
Section 80a-1 et seq., or any amendment or successor provision, [and any
regulations issued thereunder].
Comment
Principal
Sources – Delaware Statutory Trust Act §3805.
The organization of a master
statutory trust with several series is particularly common among statutory
trusts that are registered as investment companies under the Investment Company
Act of 1940, as amended, 15 U.S.C. Sections 80a-1 et seq. (the “1940 Act”).
[Remainder of comment to come.]
SECTION 406. DISSOLUTION OF
SERIES.
(a)
A series of a statutory trust may be dissolved or its property distributed
without causing the dissolution of the trust or any other series thereof.
(b) A series is dissolved, and its activities
must be wound up, upon the occurrence of an event or circumstance that the
governing instrument states causes dissolution.
(c) Upon dissolution of a series,
the persons that under the governing instrument are responsible for winding up
the affairs of the series may cause the statutory trust take all actions as are
permitted under Section 802(c), shall provide for the claims and obligations of
the series as provided in Sections 803 and 804, and distribute the property of
the series as provided in Section 808.
(d) Any person, including a trustee,
that under the governing instrument is responsible for winding up the affairs
of a series under subsection (a) is not liable to the claimants of the
dissolved series by reason of the person’s actions in winding up the series if
the person complied with this section.
Comment
Principal
Source – Delaware Statutory Trust Act §3808; Revised Uniform Limited
Liability Company Act §§701-02 (2006).
Under
Section 103(c)(4), paragraph (c) of this Section is not subject to override by
the governing instrument.
SECTION 501. MANAGEMENT OF STATUTORY TRUST. The
business and affairs of a statutory trust are managed by or under the authority
of its trustees.
Comment
Principal
Sources – Delaware Statutory Trust Act §3806; Connecticut Statutory Trust
Act §34-517; Uniform Limited Partnership Act §105 (2001); Delaware General
Corporation Law §141; Revised Model Business Corporation Act §8.01 (2002).
Section 102(18) defines the term “trustee”
as a person designated as such in accordance with the governing instrument or
applicable law. Section 104(b)(5)(C)
confirms that the governing instrument may provide for trustee
appointment. However, because no
provision in this Act provides default rules for trustee appointment, if the
governing instrument does not provide for trustee appointment, then under
Section 105 the applicable law is the state’s law pertaining to trustee
appointment in common-law trusts. For
treatment of the default rules of trustee appointment, removal, and succession
in common-law trusts, see Restatement (Third) of Trusts §§31-37 (2003); Uniform
Trust Code §§701-02, 704-06 (2000); Restatement (Second) of Trusts §§101,
106-08 (1959).
SECTION
502. TRUSTEE POWERS.
A trustee
may exercise:
(1) powers conferred by the governing
instrument;
(2) except as limited by the
governing instrument, any other powers necessary or convenient to carry out the
business and affairs of the statutory trust; and
(3) any other powers conferred by
this [act].
Comment
Principal
Source –Uniform Trust Code §815 (2000).
This section is intended to grant
trustees the broadest possible powers.
Hence, this section overrides the application to a statutory trust under
Section 105 of the outmoded common law rule that a trustee has only those
powers granted by the trust instrument.
See Uniform Trust Code §815 (2000); Restatement (Third) of Trusts §85
cmt. a (2007).
However, the existence of a power,
regardless of its source, does not speak to the question whether the exercise
of that power in a particular case is consistent with the trustee’s fiduciary
obligation. The trustee’s exercise of
the broad powers conferred by this section is always subject to the trustee’s
fiduciary obligations. See Uniform Trust Code §815 cmt.
(2000); Restatement (Third) of Trusts §§70,
86 (2007); John H. Langbein, The
Contractarian Basis of the Law of Trusts, 105 Yale L.J. 625, 640-43
(1995).
SECTION 503. ACTION BY TRUSTEES. On any matter that is to be acted on by
trustees:
(1) the trustees act by majority of
their number;
(2) the trustees may act without a
meeting, without previous notice, and without a vote, if a consent or consents,
in a record, setting forth the action so taken, are signed by the minimum
number of trustees necessary to authorize or take the action at a meeting at
which all trustees entitled to vote thereon were present and voted, but prompt
notice of the action must be given to those trustees that did not consent; and
(3) a trustee may vote in person or
by proxy, but, if by proxy, the proxy must be in a signed record.
Comment
Principal
Sources – Delaware Statutory Trust Act §3806; Connecticut Statutory Trust
Act § 34-517; Delaware General Corporation law §228; Uniform Trust Code §703
(2000).
In accord with Uniform Trust Code
§703(a) (2000) and Restatement (Third) of Trusts §39 (2003), paragraph (a)(1)
rejects the common law rule requiring unanimity among the trustees of a private
trust, replacing it with a default rule requiring a majority of the trustees.
The remainder of this section allows
for maximum flexibility in the mechanics of allowing the trustees to act or
vote on actions. Section 104(b)(4)
confirms that the rules stated in this Section are subject to override by the
governing instrument.
The Investment Company Act of 1940
requires a mutual fund’s investment advisory contract, underwriting contract,
fidelity bond, independent public accountants, and other such matters to be
approved by the trustees of the mutual fund.
See 15 U.S.C. § 80a-15(a); 15 U.S.C. 80a-31(a); 17 C.F.R. §
270.17g-1. Investment advisory and
underwriting contracts, and selection of independent public accountants, must
be approved by the noninterested trustees at an in-person meeting. See 15 U.S.C. §80a-15(c); 15 U.S.C.
80a-31(a).
SECTION 504. PROTECTION OF PERSON DEALING WITH TRUSTEE.
(a) A person, other than a
beneficial owner, that in good faith assists a trustee, or that in good faith
and for value deals with a trustee, without knowledge that the trustee is
exceeding or improperly exercising the trustee’s power, is protected from
liability as if the trustee properly exercised the power.
(b)
A person, other than a beneficial owner, that in good faith deals with a
trustee is not required to inquire into the extent of a trustee’s power or the
propriety of its exercise.
(c) A person that in good faith delivers assets
to a trustee need not ensure their proper application.
(d) A person, other than a beneficial owner, that
in good faith assists a former trustee as if the former trustee were still
trustee, or that in good faith and for value deals with a former trustee as if
the former trustee were still trustee, without knowledge that the trusteeship
has terminated is protected from liability as if the former trustee were still
a trustee.
Comment
Principal Source – Uniform Trust Code
§1012 (2000).
Paragraph (a) protects two different
classes of persons: (1) a person other than a beneficial owner that assists a
trustee with a transaction, and (2) a person other than a beneficial owner that
deals with the trustee for value. As
long as the assistance was provided or the transaction was entered into in good
faith and without knowledge that the trustee was exceeding or improperly exercising
the trustee’s powers, a third person in either category is protected in the
transaction.
Paragraph (b) confirms that a third
party that is acting in good faith is not charged with a duty to inquire into
the extent of a trustee’s power or the propriety of its exercise. The third party may assume that the trustee
has the necessary power. Paragraph (b) therefore
overrides the application to a statutory trust under Section 105 of the common
law rule that a third party is charged with constructive notice of the trust
instrument and its contents. See George
G. Bogert & George T. Bogert, The Law of Trusts and Trustees §897 (Rev. 2d
ed. 1995); 4 Austin W. Scott & William F. Fratcher, The Law of Trusts §297
(4th ed. 1989).
Paragraph (c) protects any person,
including a beneficial owner, that in good faith delivers property to a
trustee. The standard of protection in
Restatement (Second) of Trusts §321 (1959) is phrased differently, but the
result is similar. Under the Restatement
(Second) of Trusts, the person delivering property to a trustee is liable if at
the time of the delivery the person had notice that the trustee was misapplying
or intending to misapply the property.
Paragraph (d) extends the
protections afforded by this section to assistance provided to or dealings for
value with a former trustee. The third
party is protected as if the former trustee still held the office if the third
party acted in good faith.
(a)
In discharging the duties of trusteeship, a trustee shall act in good
faith and in a manner that the trustee reasonably believes to be in the best
interests of the statutory trust.
(b) A trustee shall discharge its duties with the care
that a person in a similar position would reasonably believe appropriate under
similar circumstances.
Comment
Principal
Source – Revised Model Business Corporation Act §8.30 (2002).
To police the exercise of the
trustee’s broad powers under Section 502, this section subjects the trustee to
fiduciary duties of loyalty (paragraph (a)) and care (paragraph (b)) akin to
those of a corporate director.
Under Section 103(c)(5), the
trustee’s standards of conduct under this section are mandatory rules that are
not subject to override by the governing instrument. However, the governing instrument may prescribe
the standards by which good faith, best interests of the statutory trust, and care
that a person in a similar position would reasonably believe appropriate under
similar circumstances are determined provided that the standards are not
manifestly unreasonable. Compare
Delaware Statutory Trust Act §3806(c), which provides that a trustee’s fiduciary
duties “may be expanded or restricted or eliminated by provisions in the
governing instrument; provided, that the governing instrument may not eliminate
the implied contractual covenant of good faith and fair dealing,” and §3806(e),
which provides that a “governing instrument may provide for the limitation or
elimination of any and all liabilities for . . . breach of duties (including
fiduciary duties) . . .; provided, that a governing instrument may not limit or
eliminate liability for any act or omission that constitutes a bad faith
violation of the implied contractual covenant of good faith and fair dealing.”
The drafting committee opted to
model the trustee’s duties on the corporate fiduciary obligation as stated in Revised
Model Business Corporation Act §8.30 (2002) rather than the more restrictive
trust law fiduciary obligation because the statutory trust is used chiefly as a
mode of business organization. Unlike
the trust law fiduciary obligation, which evolved in the context of donative
transfers, the corporate law fiduciary obligation evolved to serve the needs of
commercial actors. For a statement of
the duties of loyalty and prudence in trust law, see Restatement (Third) of
Trusts §§77-78 (2007). For a comparison,
see Robert H. Sitkoff, Trust Law, Corporate Law, and Capital Market Efficiency,
28 J. Corp. L. 565, 572-82 (2003). See
also the sources cited in the Comment to Section ___[interested transactions].
SECTION 506. GOOD-FAITH RELIANCE. A trustee, officer, employee, manager, or
committee of a statutory trust, or other person designated pursuant to Section
104(a)(7), is not liable to the trust or to a beneficial owner for breach of
any duty, including a fiduciary duty, to the extent the breach resulted from
the good-faith reliance on:
(1) the terms of the governing
instrument;
(2) the records
of the statutory trust; or
(3) the
opinions, reports, or statements of another person that are in the other person’s
professional or expert competence and are made or delivered to the trustee,
officer, employee, manager, or committee of a statutory trust, or other
person designated pursuant to Section 104(b)(7).
Comment
Principal
Source – Uniform Trust Code §1006 (2000); Delaware Statutory Trust Act
§3806; Connecticut Statutory Trust Act §34-517.
A trustee, officer, employee,
manager, committee, or other such person or persons should be able to
administer a statutory trust with dispatch and without concern that a
reasonable reliance on (1) the terms of the governing instrument, (2) the
records of the statutory trust, or (3) the opinions of experts is
misplaced. This section protects a
person that so relies, but only to the extent the breach of trust resulted from
such reliance and only if the person’s reliance was in good faith. “Taking the advice of
legal counsel,” for example, “evidences prudence on the part of the
trustee. Reliance on the advice of
counsel, however, is not a complete defense to an alleged breach of trust,
because that would reward a trustee who shopped for legal advice that would
support the trustee’s desired course of conduct or who otherwise acted
unreasonably in procuring or following legal advice. In seeking and considering advice of counsel,
the trustee has a duty to act with prudence.
Thus, if a trustee has selected trust counsel prudently and in good
faith, and has relied on plausible advice on a matter within counsel’s
expertise, the trustee’s conduct is significantly probative of prudence.” Restatement (Third) of Trusts §77 cmt. b(2)
(2007).
SECTION 507. INTERESTED TRANSACTIONS.
(a) Subject to subsection (b), a
trustee, officer, employee, or manager of a statutory trust, or a related
person of a trustee, officer, employee, or manager, may lend money to, borrow
money from, act as a surety, guarantor, or endorser for, guarantee or assume
one or more obligations of, provide collateral for, and do other business with
the trust and has the same rights and obligations with respect to any such
matter as a person that is not a trustee, officer, employee, manager, or
related person of a trustee, officer, employee, or manager.
(b) A
transaction under subsection (a) is voidable by the statutory trust unless the
related party shows that the transaction is fair to the trust.
Comment
Principal
Sources – Delaware Statutory Trust Act §3806; Delaware General Corporation
Law §144.
Consistent with the use of the term
“best interests” instead of “sole interest” in Section 505(a), this section
abrogates the no-further-inquiry rule of the common law of trusts, which
forbids self-dealing transactions even if the transaction is fair and in the
best interests of the trust and the beneficiaries. See Restatement (Third) of Trusts §78 (2007);
Restatement (Second) of Trusts §170 (1959); John H. Langbein, Questioning the
Trust Law Duty of Loyalty: Sole Interest or Best Interest?, 114 Yale L.J. 929
(2005); Melanie B. Leslie, Trusting Trustees: Fiduciary Duties and the Limits
of Default Rules, 94 Georgetown L.J. 67 (2005). Instead, this section follows the corporate
model whereby an interested transaction is voidable by the statutory trust
unless the related party shows that the transaction is fair to the trust. For discussion of the fairness test as
applied in corporate law, see Steven M. Bainbridge, Corporation Law and
Economics §7.2, at pp. 315-16 (2002), citing Marciano v. Nakash, 535 A.2d 400
(Del. 1987).
[to
come: commentary on the point that this section is not scheduled in 103(c),
hence ratification and related ideas may be addressed/altered in the governing
instrument; and that the purpose of this section is to override the
no-further-inquiry rule, not to validate all self-dealing transactions]
The application of this section to a
statutory trust that is registered as an investment company is preempted by the
Investment Company Act of 1940, which generally prohibits a trustee, officer,
employee, manager, and their related persons from lending money to, borrowing
money from, and engaging in other transactions with the mutual fund without
exemptive relief from the Securities and Exchange Commission. See 15 U.S.C. §80a-17(a), (d).
SECTION 508. TRUSTEE’S RIGHT TO INFORMATION. A
trustee has the right to information relating to the affairs of the statutory
trust reasonably related to the trustee’s discharge of the trustee’s duties as
trustee.
Comment
Under Section 103(c)(6), the
trustee’s right to information under this section is not subject to override by
the governing instrument. However, the
trustee’s right to information is limited to information “reasonably related to
the trustee’s discharge of the trustee’s duties as trustee,” and under Section 103(c)(6)
the governing instrument may prescribe the standards by which reasonably
related is determined provided that those standards are not manifestly
unreasonable.
By linking the trustee’s information
rights to the scope of the trustee’s duties as trustee, this section makes the trustee’s
right to information function specific. This
section therefore allows for the creation of a limited-role or directed trustee
that will not have access to confidential information unrelated to the
trustee’s limited role. At the same
time, this section ensures that such a trustee will have access to information reasonably
related to discharging the trustee’s duties in connection with the trustee’s
limited role.
Section 608 provides for a
beneficial owner’s right to information.
SECTION 509. INDEMNIFICATION, ADVANCEMENT, AND EXONERATION.
(a) A statutory trust may indemnify
and hold harmless any trustee or beneficial owner or other person with respect
to any claim or demand on the person by reason of the person’s relationship with
the trust if the claim or demand does not arise from the person’s bad faith,
willful misconduct, or reckless indifference.
(b) Expenses, including reasonable attorney’s fees and costs, incurred by a
trustee, beneficial owner, or any other person in connection with a
claim or demand on the person by
reason of the person’s relationship with or to a statutory trust may be paid by
the trust in advance of the final disposition of the claim or demand upon an
undertaking by or on behalf of the person to repay the trust if the person is
ultimately determined not to be entitled to be indemnified under subsection
(a).
(c) A term in the governing
instrument relieving or exonerating a trustee from liability is unenforceable
to the extent that it relieves the trustee from liability for conduct involving
bad faith, willful misconduct, or reckless indifference.
Comment
Principal
Sources – Delaware Statutory Trust Act §3817; Connecticut Statutory Trust
Act §34-524; Delaware General Corporation Law §145; Uniform Trust Code §§105,
1008 (2000).
In Nakahara v. The NS 1991 American
Trust, 739 A.2d 770 (Del. Ch. 1998), the Delaware Chancery Court held that a Delaware
statutory trust had the power to advance litigation expenses, but denied the
trustees’ request for indemnification on the ground of unclean hands.
Under Section 103(c)(7), this
section’s prohibition of indemnification, advancement, or exoneration for
conduct involving bad faith, willful misconduct, or reckless indifference is
not subject to override by the governing instrument. Prohibiting indemnification, advancement, or exoneration
for such conduct is consistent with traditional trust doctrine, and the
drafting committee contemplated that this section would be interpreted in
accordance with existing trust law precedent.
See Restatement (Second) of Trusts §222 (1959); George G. Bogert &
George T. Bogert, The Law of Trusts and Trustees §542 (rev. 2d ed. 1993);
Uniform Trust Code §1008. See also John H. Langbein, Mandatory Rules in
the Law of Trusts, 98 Nw. U.L. Rev. 1105, 1121-25 (2004).
It is also consistent with the Delaware Statutory Trust Act. See Delaware Statutory Trust Act §3806(e),
which provides that the “governing instrument may provide for the limitation or
elimination of any and all liabilities for breach of contract and breach of
duty (including fiduciary duties) of a trustee . . . ; provided, that the
governing instrument may not eliminate the implied contractual covenant of good
faith and fair dealing.” Limitations on
permissible exoneration are also familiar business entity law. See, e.g., Delaware General Corporation Law
§102(b)(7).
Any indemnification provision in the governing instrument
of a statutory trust that operates as a mutual fund is subject to Section 17(h)
of the Investment Company Act of 1940, which generally prohibits a fund from
including in its organizational documents any provision that protects a trustee
or officer of a fund against liability to the fund or its shareholders by
reason of “willful misfeasance, bad faith, gross negligence, or reckless
disregard” of the person’s duties as trustee or officer. 15 U.S.C. § 80a-17(h).
The SEC has taken the position that, before advancing
legal fees to a trustee of a mutual fund, the fund’s “board must either (1)
obtain assurances, such as by obtaining insurance or receiving collateral
provided by the [trustee], that the advance will be repaid if the trustee is
found to have engaged in disabling conduct, or (2) have a reasonable belief
that the [trustee] has not engaged in disabling conduct and ultimately will be
entitled to indemnification.” SEC
Interpretation: Matters Concerning
Independent Directors of Investment Companies, Investment Company Act Rel. No.
24083 (Oct. 14, 1999), 1999 WL 820629, *10.
The SEC has also taken the position that there is a rebuttable
presumption that an independent trustee (see Section ___) has not engaged in
disabling conduct. Id.
SECTION 510. DIRECTION OF TRUSTEES.
(a)
The governing instrument may authorize any person, including a beneficial
owner, to direct a trustee or other person in the management of the statutory
trust.
(b) The governing instrument may
provide that neither the power to direct a trustee or other person nor the
exercise of the power by any person, including a beneficial owner, causes the
person to be a trustee or imposes on the person duties, including fiduciary
duties, or liabilities relating thereto, to a statutory trust or to a
beneficial owner thereof.
(c) If the governing instrument
confers upon a person a power to direct certain actions of a trustee or other
person, the trustee or other person shall act in accordance with an exercise of
the power unless the direction is manifestly contrary to the terms of the
governing instrument or the trustee knows or has reason to know that following
the direction would constitute a serious breach of fiduciary duty by the
trustee.
Comment
Principal
Sources – Delaware Statutory Trust Act §3806; Connecticut Statutory Trust
Act §34-517; Uniform Trust Code §808 (2000).
Paragraph (a) ratifies the use of a
directed trustee, meaning a trustee that must act in accordance with the
directions of another person. Under
paragraph (b), however, the trustee must not follow a direction that is
manifestly contrary to the terms of the governing instrument or that the
trustee knows or has reason to know would constitute a serious breach of
fiduciary duty. For general discussion,
see Restatement (Third) of Trusts §75 (2007); Restatement (Second) of Trusts
§185 (1959) Richard W. Nenno, Directed Trusts: Can Directed Trustees Limit
Their Liability?, 21 Prob. & Prop. 45 (Nov./Dec. 2007).
Paragraph (b) confirms that the
governing instrument may provide that a person that has the power to direct the
trustee is not a trustee and owes no duties, fiduciary or otherwise, to the
statutory trust or a beneficial owner.
The reference in paragraph (c) to
“serious” breach of fiduciary duty is designed to exclude an inconsequential,
immaterial, or technical breach that does not harm a beneficial owner. For some purposes, such as trustee removal, trust
law distinguishes between “serious” and not serious breaches of trust. See Uniform Trust Code §706(b)(1) (2000);
Austin Wakeman Scott, William F. Fratcher, & Mark L. Ascher, 2 Scott and
Ascher on Trusts §11.10, p. 661 (5th ed. 2006); Restatement (Second) of Trusts
§107 cmt. b (1959).
The trustee’s determination whether
a direction is “manifestly contrary to the terms of the governing instrument”
or “would constitute a serious breach of fiduciary duty by the trustee” is
subject to the trustee’s fiduciary obligations.
The drafting committee contemplated that, in accord with conventional
trust practice, a trustee could seek judicial resolution of whether an
instruction falls within the exclusion of paragraph (b) by applying to the
appropriate court for instructions. See
Restatement (Second) of Trusts §259 (1959); Restatement (Third) of Trusts §71 (2007).
Under Section 103(c)(8), the
limitation on direction of trustees stated in paragraph (c) is not subject to
override by the governing instrument.
In conjunction with Section 511,
this section facilitates the current practice in existing statutory trusts of
creating a limited purpose trustee—for example, in a mutual fund with an
investment advisor or in a securitization transaction with a person who is
responsible for distribution computations or whose consent is required before
the statutory trust can petition for bankruptcy.
SECTION 511. DELEGATION BY TRUSTEE.
(a)
A trustee may delegate duties and powers. The trustee must exercise the care a person
in a similar position would reasonably believe appropriate under similar
circumstances in:
(1) selecting an agent;
(2) establishing the
scope and terms of the delegation; and
(3) periodically
reviewing the agent’s actions in order to monitor the agent’s performance and
compliance with the terms of the delegation.
(b)
Subject to subsection (a), a trustee may delegate duties and powers to a
co-trustee.
(c)
In performing a delegated function, an agent owes a duty to the
statutory trust to exercise reasonable care to comply with the terms of the
delegation.
(d)
A trustee that complies with subsection (a) is not liable to the
beneficial owners or to the statutory trust for an action of the agent to which
the function was delegated.
(e)
An agent submits to the jurisdiction of the courts of this state by accepting
a delegation of powers or duties from the trustee of a statutory trust that is
subject to the law of this state.
Comment
Principal
Sources – Delaware Statutory Trust Act §3806; Connecticut Statutory Trust
Act §34-517; Uniform Trust Code §807 .
This section reverses the outmoded
common law rule against delegation by a trustee. In reversing the common law rule against
delegation, the drafting committee followed both the Delaware Statutory Trust
Act and the modern trend with respect to common-law trusts. Most states have abrogated the common law nondelegation
rule with legislation based on the Uniform Prudent Investor Act, Uniform Trust
Code, or the Restatement (Third) of Trusts. See Uniform Trust Code §807 (2000); Uniform
Prudent Investor Act §9 (1994); Restatement (Third) of Trusts: Prudent Investor
Rule §171 (1992). See also Restatement
(Third) of Trusts §80 (2007); John H. Langbein, Reversing the Nondelegation
Rule of Trust-Investment Law, 59 Mo. L. Rev. 105 (1994).
Paragraphs (a), (c), (d), and (e) are
patterned on Uniform Trust Code §807 (2000), which is derived from Uniform
Prudent Investor Act §9 (1994). This
section deviates from prior uniform acts, however, on the issue of delegation
to a co-trustee. Following the Delaware
Statutory Trust Act, paragraph (b) treats delegation to a co-trustee in the
same manner as delegation to another person.
By contrast, traditional trust law disfavors delegation by one
co-trustee to another. See Restatement
(Second) of Trusts §184 (1959). See also
Uniform Trust Code §703(e) (2000); Restatement (Third) of Trusts §81 cmt. c(1)
(2007). The traditional rule reflects the
assumption that, if the donor named more than one trustee, the donor intended
each to be a check on the other(s). That
policy does not fit commercial statutory trust practice, in which limited
purpose or function trustees are common.
Mutual funds often receive a common
set of services from an organization that specializes in operating mutual
funds, which is typically the investment adviser or an affiliate. The trustees
monitor the service providers and the Investment Company Act of 1940 requires
the trustees to approve the contracts with the adviser and distributor. See 15 U.S.C. § 80a-15.
SECTION 512. INDEPENDENT TRUSTEE IN REGISTERED INVESTMENT
COMPANY.
(a) In this section, the terms
“affiliated person” and “interested person” have the meanings set forth in the
Investment Company Act of 1940, [as amended,] 15 U.S.C. Section 80a-1 et seq.,
[and any regulations issued thereunder].
(b) If a statutory trust is
registered as an investment company under the Investment Company Act of 1940, [as
amended,] 15 U.S.C. Section 80a-1 et seq., [or any successor statute thereto,] [and
any regulations issued thereunder,] a trustee is an independent trustee for all
purposes under this [act] if the trustee is not an interested person of the
trust. The receipt of compensation both for
service as an independent trustee of the trust and for service as an
independent trustee of one or more other investment companies managed by a
single investment adviser or an affiliated person of an investment adviser,
does not affect the status of the trustee as an independent trustee under this
section.
Comment
Principal
Source – Delaware Statutory Trust Act §3801.
It is not uncommon
for a director of a mutual fund to serve on multiple mutual fund boards. This section addresses the question of
trustee independence in such circumstances, rejecting Strougo v. Scudder, Stevens & Clark, 964 F. Supp. 783
(S.D.N.Y. 1997) (applying Maryland law).
In Strougo the plaintiffs
claimed that directors serving on multiple boards within a mutual fund complex
became “interested” by virtue of their close financial relationship with the
investment advisor. The plaintiffs
brought a derivative suit against a fund’s investment advisor alleging
excessive fees. The plaintiffs did not,
however, make a demand on the directors prior to filing suit. The court excused the plaintiffs from the
demand requirement because the fund’s directors served on multiple boards
within the same fund complex, receiving “substantial remuneration,” and hence
were not independent from the adviser.
Id. at 793-95.
In 1998 the Maryland legislature
effectively overruled Strougo by
amending the Maryland corporate code to provide that directors who are not
“interested persons” under the Investment Company Act of 1940 also would be
deemed disinterested under Maryland law.
See Md. Code (Corporations & Associations) §2-405.3. A similar provision took effect in
Massachusetts in 1999, see Mass. Laws. 182, § 2B, and in Delaware in 2000, see
Delaware Statutory Trust Act §3801(h).
Almost all mutual funds are organized as Maryland corporations,
Massachusetts trusts, or Delaware statutory trusts. See Robert H. Sitkoff, The Rise of the
Statutory Business Trust [in progress].
Consistent with the Maryland, Massachusetts, and Delaware legislation,
this section rejects Strougo by
deeming a trustee to be independent if he or she is not an interested person
under the Investment Company Act of 1940, as amended.
SECTION 601. BENEFICIAL INTEREST.
(a) A beneficial interest in the
statutory trust is freely transferable.
(b) A beneficial owner does not have
a preemptive right to subscribe to any additional issue of beneficial interests
or any other interest.
Comment
Principal
Source – Delaware Statutory Trust Act §3805; Connecticut Statutory Trust
Act §34-516; Revised Uniform Limited Liability Company Act §404 (2006).
Paragraph (a) provides as a default
rule that a beneficial owner’s interest in the statutory trust is freely
transferable. This paragraph therefore overrides the rule in
some states, which would otherwise be applicable to a statutory trust pursuant
to Section 105, that makes a common-law trust spendthrift by default. See Jeffrey A. Schoenblum, 2008 Multistate
Guide to Estate Planning Table 9.05, Part 1, Column 2 (collecting authority). However, because the rule stated in paragraph
(a) is not scheduled in Section 103(c), it is subject to override by the
governing instrument. Section
104(b)(2) confirms that the governing instrument may limit a beneficial owner’s
right to transfer its beneficial interest.
Section 606 provides for a charging order against a beneficial owner’s
rights to distributions in the event that the beneficial owner’s beneficial
interest is not freely transferable.
[Commentary for paragraph (b) to come.]
Under Section 104(b)(13), the
governing instrument may provide for the establishment of record dates for
distributions.
SECTION 602. VOTING OR CONSENT BY BENEFICIAL OWNERS. On any matter that is to be acted on by
beneficial owners, the following rules apply:
(1) The beneficial owners act by
majority of their number.
(2) The beneficial owners may take
the action without a meeting, without notice, and without a vote, if a consent,
or consents, in a record, setting forth the action so taken, are signed by
beneficial owners having at least the minimum number of votes necessary to
authorize or take the action at a meeting at which all beneficial owners
entitled to vote thereon were present and voted, but prompt notice of the
action must be given to those beneficial owners that did not consent.
(3) A beneficial owner may vote in
person or by proxy, but if by proxy, the proxy must be contained in a signed
record.
Comment
Principal
Source – Delaware Statutory Trust Act §3806; Delaware General Corporation
Law §228.
Except for a conversion, merger, or
dissolution under Article 6, nothing in this act provides for the beneficial
owners to act on any matter. However,
because the beneficial owners may be given such a right by the terms of the
governing instrument, this paragraph supplies a default rule requiring a
majority of the number of beneficial owners.
The drafting committee contemplated that the governing instrument
typically will address voting rules by providing a per capital or other
share-based allocation of voting rights.
However, the drafting committee declined the suggestion to try to
incorporate such a rule as a default.
Such rules are necessarily transaction-specific and hence infeasible to
specify in a one-size-fits-all default.
Compare Revised Uniform Partnership Act §401(f) (1997), which provides
that “[e]ach partner has equal rights in the management and conduct of the
partnership business.”
The Investment Company Act of 1940,
as amended, specifies the percentage of vote necessary to approve certain
actions related to the investment company.
In other instances, 1940 Act requires the action to be approved at a
shareholders’ meeting called for that purpose.
In such instances, approval of the action by written consent without
notice would not be valid. For example,
Section 16(a) of the 1940 Act provides that “no person shall serve as a
director of an investment company unless elected to that office by the holders
of the outstanding voting securities of such company, at an annual or a special
meeting duly called for that purpose.”
In addition, investment companies seeking the vote of shareholders on
specific actions must comply with rules governing the communication to, and
solicitation of, their shareholders. See
Rules 14a-1 to 14b-2 under the Securities Exchange Act of 1934, as
amended. These rules are significantly
more comprehensive than most state statutes and rules governing communications
to shareholders and other aspects of a shareholder meeting.
Section 104(b)(4) confirms that
the rules stated in this Section are subject to override by the governing
instrument.
SECTION 603. CONTRIBUTION BY BENEFICIAL OWNER.
(a) A contribution of a beneficial
owner to a statutory trust may be in cash, property, or services rendered or a
promissory note or other obligation to contribute cash or property or to
perform services. A person may become a
beneficial owner of a statutory trust and may receive a beneficial interest in
a statutory trust without making a contribution or being obligated to make a
contribution to the trust.
(b) A beneficial owner is liable to
the statutory trust for failure to perform any promise to contribute cash or
property or to perform services, even if the beneficial owner is unable to
perform because of death, disability, or any other reason. If a beneficial owner does not make the
required contribution of cash, property, or services, the beneficial owner is
obligated, at the option of the trust, to contribute cash equal to that portion
of the value of the contribution that has not been made. This option is in addition to, and not in place
of, any other rights, including the right to specific performance, that the trust
may have against the beneficial owner under the governing instrument or
applicable law.
(c) The governing instrument may
provide that a beneficial owner that fails to make a contribution that the
beneficial owner is obligated to make or fails to perform in accordance with,
or to comply with the terms and conditions of, the governing instrument is
subject to specified penalties or consequences of the failure, including:
(1) reduction or
elimination of the defaulting beneficial owner’s proportionate interest in the
statutory trust or series thereof;
(2) subordination of the
defaulting beneficial owner’s beneficial interest to that of nondefaulting
beneficial owners;
(3) forced sale or
forfeiture of the defaulting beneficial owner’s beneficial interest;
(4) imposition of an obligation
to repay a loan to the statutory trust by another beneficial owner of the
amount necessary to meet the defaulting beneficial owner’s commitment; and
(5) redemption or sale
of the defaulting beneficial owner’s beneficial interest at a value fixed by
appraisal or by formula.
Comment
Principal
Sources – Delaware Statutory Trust Act §3802; Connecticut Statutory Trust
Act §34-515.
Although statutory trusts are used primarily
as a mode of business organization in commercial transactions, paragraph (a)
acknowledges that a beneficial owner may obtain a beneficial interest without
an exchange of consideration, an event that is not uncommon in existing
commercial practice. However, a
statutory trust may not be used to effect a donative transfer because Section 302
prohibits a statutory trust from having a “prevailingly donative purpose.”
Paragraph (c) repudiates the
hostility of traditional law to penalties, thereby resolving the doubts that
arose prior to statutory confirmation about the validity of particular remedies
for a beneficial owner’s breach.
Under Section 104(b)(1), the
governing instrument may provide the means by which beneficial ownership is
determined and evidenced. Under Section
104(b)(10)-(11), the governing instrument may specify the conditions under
which a person becomes a beneficial owner.
SECTION 604. DISTRIBUTION TO
BENEFICIAL OWNER.
(a) When a beneficial owner becomes
entitled to receive a distribution, the beneficial owner has the status of, and
is entitled to all remedies available to, a creditor of the statutory trust
with respect to the distribution.
(b) A beneficial owner does not have
a right to demand or to receive a distribution from the trust in any form other
than money.
(c) The trust may distribute an
asset in-kind if each part of the asset is fungible with each other part and
each beneficial owner receives a percentage of the asset equal in value to the
beneficial owner’s share of the distribution.
Comment
Principal
Source – Delaware Statutory Trust Act §3805; Connecticut Statutory Trust
Act §34-516; Revised Uniform Limited Liability Company Act §404 (2006).
[For comment: In the case of a statutory trust that is a
registered investment company organized as an open-end mutual fund, a
shareholder (beneficial owner) may request a redemption of any or all
of his shares (beneficial interests) and the statutory trust is
obligated to honor the redemption request and pay the redemption proceeds
within seven days (except under limited circumstances such as an emergency).
See 15 U.S.C. Sec.80(a)-22(e). The redemption proceeds must be in the
form of cash unless the open-end mutual fund has filed with the
Securities and Exchange Commission a notification of election on Form
N-18F-1. See 17 C.F.R. Sec. 270.18f-1. In such a case,
the open-end mutual fund may pay the redemption in-kind
(i.e., pay assets of the fund instead of cash) to a
shareholder who during the previous 90-day period has
redeemed $250,000 or more of shares or shares equal to one or
more percent of the net asset value of the fund. Id.]
Under Section 104(b)(13), the
governing instrument may provide for the establishment of record dates for
distributions.
SECTION 605. REDEMPTION OF BENEFICIAL INTEREST. A statutory trust may acquire, by purchase,
redemption, or otherwise, any beneficial interest in the trust or series
thereof. A beneficial interest so
acquired is canceled.
Comment
Principal
Source – Delaware Statutory Trust Act §3818.
A registered investment company organized as an open-end
mutual fund generally is obligated to honor redemption requests by its
shareholders at the net asset value per share next calculated after receipt of
the request, with payment to be made in cash (or, in some cases, in kind)
within seven days of the request. See 15 U.S.C. §80a-22(e); 17 CFR §270.22c-1.
In narrowly defined circumstances, this redemption right and obligation may be
postponed. See 15 U.S.C. §80a-22(e).
The redemption proceeds may be reduced by various fees retained by the fund
and/or its selling agent (i.e., sales loads and redemption fees). See 17 CFR §§270.22c-2; 270.6c-10.
SECTION 606. CHARGING ORDER.
(a) If a
beneficial interest is not freely transferable by a beneficial owner such that
the transferee has all rights of the transferor, a judgment creditor of a
beneficial owner may satisfy the judgment against the beneficial owner’s
beneficial interest only as provided in this section.
(b) On application by a judgment creditor of a beneficial owner,
the [appropriate court] may issue a charging order against the beneficial
owner’s right to distributions from the trust for the unsatisfied portion of
the judgment.
(c) A charging order issued under subsection (b) constitutes a
lien on the beneficial owner’s right to distributions and requires the
statutory trust to pay over to the judgment creditor any distribution that
would otherwise be paid to the beneficial owner until the unsatisfied amount of
the judgment has been satisfied.
(d) To effectuate the collection of distributions pursuant to a
charging order in effect under subsection (b), the court may:
(1) appoint a receiver of the distributions subject to the
charging order, with the power to enforce the beneficial owner’s right to a
distribution; and
(2) make all other orders necessary to give effect to the
charging order.
(e) A statutory trust or beneficial owner that is not subject to
the charging order may pay to the judgment creditor the full amount due under
the judgment lien and thereby succeed to the rights of a judgment creditor, including
the charging order.
(f)
This [act] does not deprive a beneficial owner or a transferee of the beneficial
interest of any exemption laws applicable to the beneficial interest.
Comment
Principal
Source - Revised Uniform Limited
Liability Company Act §305 (2006).
[Comment
to come.]
Under
Section 103(c)(9), the right of a judgment creditor of a beneficial owner to
seek a charging order may not be eliminated by the governing instrument.
SECTION 607. TRANSACTION WITH BENEFICIAL OWNER. A beneficial owner or related person of a
beneficial owner may lend money to, borrow money from, act as a surety,
guarantor or endorser for, guarantee or assume one or more obligations of,
provide collateral for, or do other business with the statutory trust and, subject
to law other than this [act], has the same rights and obligations with respect
to those matters as a person that is not a beneficial owner.
Comment
Principal Source – Delaware
Statutory Trust Act §3806.
SECTION 608.
BENEFICIAL OWNER’S RIGHT TO INFORMATION. A
beneficial owner has the right to receive or to obtain by summary proceeding in
the [appropriate court] information relating to the affairs of the statutory
trust reasonably related to the beneficial owner’s ability to enforce its
rights as beneficial owner.
Comment
Principal
Source – Delaware Statutory Trust Act §3819; Delaware Limited Liability
Company Act §18-305.
Under Section 103(c)(10), a
beneficial owner’s right to information under this section is not subject to
override by the governing instrument.
However, a beneficial owner’s right to information under this section is
limited to information “reasonably related to the beneficial owner’s ability to
enforce its rights as a beneficial owner,” and under Section 103(c)(8) the governing
instrument may prescribe the standards by which reasonably related is
determined if those standards are not manifestly unreasonable.
Imposing a mandatory, minimum right
to information critical to the beneficiary’s ability to enforce the trust is familiar
law. For example, Restatement (Third) of
Trusts §82 cmt. a(2) (2007), provides that “a beneficiary is always entitled .
. . to request such information as is reasonably necessary to enable the
beneficiary to prevent or redress a breach of trust and otherwise to enforce
his or her rights under the trust.” See
also 3 Austin Wakeman Scott, William F.
Fratcher, & Mark L. Ascher, 1 Scott and Ascher on Trusts §17.5, at p. 1202
(5th ed. 2006); Restatement (Second) of Trusts §173 cmt. c (1959); T.P.
Gallanis, The Trustee’s Duty to Inform, 85 N.C. L. Rev. 1595 (2007).
The drafting committee declined the
suggestion to include in this section a schedule of accessible information on
the ground that such a rule-based schedule necessarily would be over- and under-inclusive. Instead, the committee contemplated that the
term “reasonably related” would provide a more robust and flexible right to
information by allowing the beneficiary to obtain a court order in a summary
proceeding for the release of any type of information that bears on enforcement
of the beneficial owner’s beneficial interest.
Section 508 provides for a trustee’s
right to information.
SECTION 609. ACTION BY BENEFICIAL OWNER.
(a) A beneficial owner may maintain
a direct action against a statutory trust to redress an injury sustained by, or
to enforce a duty owed to, the beneficial owner if the beneficial owner can
prevail without showing an injury or breach of duty to the trust.
(b) A beneficial owner may maintain
a derivative action in the [appropriate court] to redress an injury sustained
by, or enforce a duty owed to, a statutory trust if:
(1) the beneficial owner
first makes a demand on the trustees, requesting that the trustees cause the
trust to bring an action to enforce the right, and the trustees do not bring
the action within a reasonable time; or
(2) a demand would be
futile.
(c) A derivative action on behalf of
a statutory trust may be maintained only by a person that is a beneficial owner
at the time the action is commenced and:
(1) was a beneficial
owner when the conduct giving rise to the action occurred; or
(2) whose status as a
beneficial owner devolved upon the person by operation of law or pursuant to
the terms of the governing instrument from a person that was a beneficial owner
at the time of the conduct.
(d) In a derivative action on behalf
of the statutory trust, the complaint must state with particularity:
(1) the date and content
of the derivative plaintiff’s demand and the trustees’ response to the demand;
or
(2) the reason the
demand should be excused as futile.
(e) Except as otherwise provided in
subsection (f):
(1) any proceeds or
other benefits of a derivative action on behalf of a statutory trust, whether
by judgment, compromise, or settlement, are the property of the trust and not of
the derivative plaintiff; and
(2) if the derivative
plaintiff receives any proceeds, it shall immediately remit them to the trust.
(f) If a derivative action on behalf
of a statutory trust is successful in whole or in part, the court may award the
plaintiff reasonable expenses, including reasonable attorney’s fees and costs,
from the recovery by the trust.
(g) A derivative action on behalf of
a statutory trust may not be voluntarily dismissed or settled without the court’s
approval.
Comment
Principal
Sources - Uniform Limited Partnership Act §§1002-1005 (2001); ALI
Principles of Corporate Governance §7.01 (1994); Delaware Statutory Trust Act
§3816; Connecticut Statutory Trust Act §34-522.
Under Section 103(c)(10), the right
of a beneficial owner to bring an action under this Section may not be
eliminated by the governing instrument.
However, Section 103(c)(10) permits the governing instrument to subject
the right to additional standards and restrictions, including the requirement
that beneficial owners owning a specified amount or type of beneficial interest
join in bringing the action, provided that the additional standards and
restrictions are not manifestly unreasonable.
In preserving a mandatory right to
bring suit, but allowing that right to be subjected to additional standards and
restrictions that are not manifestly unreasonable, this section balances two
policy aims that are in tension. On the
one hand, without the right to bring an action, a beneficial owner might have
no recourse in the event of trustee misconduct.
On the other hand, without appropriate safeguards, a meritless action
might be brought with the aim of extracting a quick settlement. See, e.g., Reinier Kraakman, Hyun Park, & Steven Shavell, When
Are Shareholder Suits in Shareholder Interests?, 82 Georgetown L.J. 1733
(1994).
For a discussion of remedies, see
the comment to Section 105.
SECTION 701. DEFINITIONS.
In this [article]:
(1)
“Constituent organization” means an organization that is party to a
merger.
(2)
“Constituent statutory trust” means a constituent organization that is a
statutory trust.
(3)
“Converted organization” means the organization into which a converting
organization converts pursuant to Sections 702 through 705.
(4)
“Converting organization” means an organization that converts into
another organization pursuant to Section 702.
(5)
“Converting statutory trust” means a converting organization that is a
statutory trust.
(6)
“Governing law” means the law that governs the organization’s internal
affairs.
(7)
“Organization” means a common-law trust that does not have a
prevailingly donative purpose; general partnership, including a limited
liability partnership; limited partnership, including a limited liability
limited partnership; limited liability company; corporation; or foreign statutory
trust. The term includes a domestic or
foreign organization whether or not organized for profit.
(8)
“Organizational documents” means the basic records that create the
organization and determine its internal governance and the relations among the
persons that own it, have an interest in it, or are members of it.
(9)
“Surviving organization” means an organization into which one or more
other organizations are merged, whether the surviving organization preexisted
the merger or was created by the merger.
Comment
Principal
Source – Uniform Limited Partnership Act §1101 (2001).
This section contains definitions
specific to this Article.
Paragraph (7) includes a common-law
trust that does not have a prevailingly donative purpose within the definition
of organization. Hence, such a common-law
trust may convert to or merge with a statutory trust under this Article if such
a conversion or merger is permitted by the trust’s governing law. Unlike the formation of a new statutory trust
by filing a certificate of trust under Section 201 (an option expressly
afforded to a common-law trust under Section 1005), conversion or merger under
this Article preserves continuity in the organization’s relationships with
third parties. See Sections 705 and 709
and the comments thereto. [consideration
of person other than a natural person to come.]
[discussion
of exclusion of prevailingly donative purpose to come].
Under Section 103(c)(12), this definitions
stated in this Section are not subject to override by the governing instrument.
(a)
An organization other than a statutory trust may convert to a statutory trust,
and a statutory trust may convert to another organization pursuant to this
section and Sections 703 through 705 and a plan of conversion, if:
(1) the conversion is
not prohibited by the law of the jurisdiction that enacted the other
organization’s governing law; and
(2) the other
organization complies with its governing law in effecting the conversion.
(b)
A plan of conversion must be in a record and must include:
(1) the name and form of
the organization before conversion;
(2) the name and form of
the organization after conversion;
(3) the terms and
conditions of the conversion, including the manner and basis for converting
interests in the converting organization into any combination of money,
interests in the converted organization, and other consideration; and
(4) the organizational
documents of the converted organization.
Comment
Principal
Sources – Uniform Limited Partnership Act §1102 (2001).
In a statutory conversion an
existing organization changes its form, the jurisdiction of its governing law,
or both. For example, a statutory trust formed
under the laws of one jurisdiction might convert to a corporation, limited
liability company, or limited partnership under the laws of the same or another
jurisdiction (referred to in some statutes as “domestication”).
In contrast to a merger, which
involves at least two entities, a conversion involves only one. The converting and converted organization are
the same organization. See Section 705(a). For this Act to apply to a conversion, either
the converting or converted organization must be a statutory trust subject to
this Act.
A plan of conversion may provide
that some persons with interests in the converting organization will receive
interests in the converted organization while other persons with interests in
the converting organization will receive some other form of consideration. Thus, a “squeeze out” conversion is possible.
For a general discussion of conversion
and its effect, see Model Entity Transactions Act §406 (2006) and comment 1
thereto.
SECTION 703. ACTION ON PLAN OF CONVERSION BY CONVERTING
STATUTORY TRUST.
(a)
A plan of conversion must be consented to by all trustees and all beneficial
owners of a converting statutory trust.
(b)
A converting statutory trust may amend a plan of conversion or abandon
the planned conversion:
(1)
as provided in the plan; and
(2) except as prohibited
by the plan, by the same consent as was required to approve the plan.
Comment
Principal
Source – Uniform Limited Partnership Act §1103 (2001).
The requirement in paragraph (a) of
unanimous consent by all trustees and beneficiaries is a default rule that may
be overridden by the governing instrument.
See Section 104(b)(5)(B). Hence,
the governing instrument may state a different quantum of consent or provide a
different approval mechanism. Varying
this subsection’s rule means that a beneficial owner might be subject to a
conversion (including a “squeeze out” conversion) without consent and with no
appraisal remedy. If the converting organization is a statutory
trust subject to this Act, the trustee of the converting organization is
subject to the duties and obligations stated in this Act. Those duties would apply to the process and
terms under which the conversion occurs.
However, if the governing instrument allows for a conversion with less
than unanimous consent, the mere fact that a beneficial owner objects to a
conversion does not mean that a trustee that is favoring, arranging, consenting
to, or effecting the conversation has breached a duty under this Act.
In the case of a statutory trust
that is a registered investment company organized as an open-end mutual fund, a
shareholder may elect to redeem any or all beneficial interests in the
statutory trust at the current net asset value per share, see 17 C.F.R.
§270.22c-1, which is a price that is akin to an appraisal value. Except for limited circumstances, a mutual
fund is required to pay proceeds to the redeeming shareholder within seven days
of the date of redemption request. See
15 U.S.C. §80a-22(e). Thus, a mutual fund generally does not afford
dissenting rights to its shareholders because any shareholder of a mutual
fund being converted may redeem fund shares at net asset value prior
to the closing date of the proposed conversion.
(a)
After a conversion is approved:
(1) a converting statutory
trust shall deliver to the [Secretary of State] for filing articles of
conversion, which must include:
(A) a
statement that the trust has been converted into another organization;
(B) the name
and form of the converting organization and the jurisdiction of its governing law;
(C) a statement that the conversion
was approved as required by this [act];
(D) a statement that the conversion is
not prohibited by the governing law of the converted organization; and
(E) if the
converted organization is a foreign organization not authorized to do business
in this state, the street and mailing addresses of an office that the
[Secretary of State] may use for the purposes of Section 705(c); and
(2)
if the converting organization is not a converting statutory trust, the
converting organization shall deliver to the [Secretary of State] for filing a
certificate of trust, which must include, in addition to the information
required by Section 201:
(A) a
statement that the trust was converted from another organization;
(B)
the name and form of the converting organization and the jurisdiction of its governing
law; and
(C)
a statement that the conversion was approved in a manner that complied with the
organization’s governing law.
(b)
A conversion becomes effective when the certificate of conversion is
effective as provided in Section 204(c).
Comment
Principal
Source – Uniform Limited Partnership Act §1104 (2001).
Under paragraph (b) the effective
date of a conversion is determined under the governing law of the converted
organization.
Under Section 103(c)(12), this
Section is not subject to override by the governing instrument.
(a)
An organization that has been converted pursuant to this [article] is
for all purposes the same organization that existed before the conversion.
(b)
When a conversion under this [article] takes effect:
(1) all property owned
by the converting organization remains vested in the converted organization;
(2) all debts,
obligations, and other liabilities of the converting organization continue as debts,
obligations, or other liabilities of the converted organization;
(3) an action or
proceeding pending by or against the converting organization may be continued
as if the conversion had not occurred;
(4) except as prohibited
by law other than this [act], all of the rights, privileges, immunities,
powers, and purposes of the converting organization remain vested in the
converted organization;
(5) except as otherwise
provided in the plan of conversion, the terms and conditions of the plan of
conversion take effect; and
(6) except as otherwise
agreed, the conversion does not dissolve a converting statutory trust or any
series thereof for the purposes of Section 701.
(c)
A converted organization that is a foreign organization consents to the
jurisdiction of the courts of this state to enforce any debt, obligation, or
other liability for which the converting statutory trust is liable, if, before
the conversion, the converting statutory trust was subject to suit in this
state on the debt, obligation, or other liability. A converted organization that is a foreign
organization and not authorized to do business in this state appoints the
[Secretary of State] as its agent for service of process for purposes of
enforcing a debt, obligation, or other liability under this subsection. Service on the [Secretary of State] under
this subsection is made in the same manner and with the same consequences as in
Section 214(c) and (d).
Comment
Principal Source – Uniform Limited
Partnership Act §1105 (2001).
Paragraph (a) confirms that conversion
changes an organization’s legal type, but does not create a new organization. Unlike a merger, a conversion involves a
single organization. Therefore under paragraph
(b) a conversion does not transfer any of the organization’s rights or
obligations. For further discussion, see
Model Entity Transactions Act §406 (2006) and comment 1 thereto.
Under Section 103(c)(12), this
Section is not subject to override by the governing instrument.
(a) A statutory trust may merge with
one or more other constituent organizations pursuant to this section and
Sections 707 through 709 and a plan of merger if:
(1) the governing law of
each of the other organizations authorizes the merger;
(2) the merger is not
prohibited by the law of a jurisdiction that enacted any of the governing law;
and
(3) each of the other
organizations complies with its governing law in effecting the merger.
(b) A plan of merger must be in a
record and must include:
(1) the name and form of
each constituent organization;
(2) the name and form of
the surviving organization and, if the surviving organization is to be created
by the merger, a statement to that effect;
(3)
the terms and conditions of the merger, including the manner and basis for
converting or exchanging the interests in each constituent organization into
any combination of money, interests in the surviving organization, and other
consideration;
(4)
if the surviving organization is to be created by the merger, the surviving
organization’s organizational documents; and
(5)
if the surviving organization is not to be created by the merger, any
amendments to be made by the merger to the surviving organization’s
organizational documents.
Comment
Principal
Source – Uniform Limited Partnership Act §1106 (2001).
For this Act to apply to a merger,
at least one of the constituent organizations must be a statutory trust subject
to this Act.
A plan of merger may provide that
some persons with interests in a constituent organization will receive interests
in the surviving organization, while other persons with interests in the same
constituent organization will receive some other form of consideration. Thus, a “squeeze out” merger is possible. As noted in the comment to Section 703, the
duties and obligations stated in this Act apply to a trustee of a constituent
organization that is a statutory trust subject to this Act. Those duties would apply to the process and
terms under which a “squeeze out” merger occurs.
SECTION
707. ACTION ON PLAN OF MERGER BY
CONSTITUENT STATUTORY TRUST.
(a) A plan of merger must be
consented to by all trustees and all beneficial owners of a constituent statutory
trust.
(b) After a merger is approved, and
at any time before a filing is made under Section 708, a constituent statutory
trust may amend the plan or abandon the planned merger:
(1) as provided in the
plan; and
(2) except as prohibited
by the plan, with the same consent as was required to approve the plan.
Comment
Principal
Sources – Uniform Limited Partnership Act §1107 (2001).
The requirement in paragraph (a) of
unanimous consent by all trustees and beneficiaries is a default rule that may
be overridden by the governing instrument.
See Section 104(b)(5)(B). Hence,
the governing instrument may state a different quantum of consent or provide a
completely different approval mechanism.
Varying this subsection’s rule means that a beneficial owner might be
subject to a merger (including a “squeeze out” merger) without consent and with
no appraisal remedy. The trustee of a
constituent statutory trust is subject to the duties and obligations stated in
this Act, and those duties would apply to the process and terms under which the
merger occurs. However, if the governing
instrument allows for a merger with less than unanimous consent, the mere fact
a beneficial owner objects to a merger does not mean that a trustee that is
favoring, arranging, consenting to, or effecting the merger has breached a duty
under this Act.
For the reasons discussed in the
comment to Section 703, a mutual fund generally does not afford dissenting
rights to its shareholders because any shareholder of an acquired mutual fund
may redeem acquired fund shares at net asset value prior to the closing
date of the proposed reorganization of the acquired fund.
(a) After each constituent
organization has approved a merger, articles of merger must be signed on behalf
of:
(1) each constituent
statutory trust, by one or more trustees or other authorized representative;
and
(2) each other
constituent organization, by an authorized representative.
(b) Articles of merger under this
section must include:
(1)
the name and form of each constituent organization and the jurisdiction of its
governing law;
(2) the name and form of
the surviving organization, the jurisdiction of its governing law, and, if the
surviving organization is created by the merger, a statement to that effect;
(3) if the surviving
organization is to be created by the merger:
(A) if it
will be a statutory trust, the trust’s certificate of trust; or
(B) if it
will be an organization other than a statutory trust, the organizational
document that creates the organization;
(4) if the surviving
organization preexisted the merger, any amendments provided for in the plan of
merger for the organizational document that created the organization;
(5)
a statement as to each constituent organization that the merger was approved as
required by the organization’s governing law;
(6) if the surviving
organization is a foreign organization not authorized to do business in this
state, the street and mailing addresses of an office that the [Secretary of
State] may use for the purposes of Section 709(b); and
(7) any additional
information required by the governing law of any constituent organization.
(c) The articles of merger must be
delivered to the office of the [Secretary of State] for filing.
(d) A merger becomes effective under
this [article]:
(1) if the surviving
organization is a statutory trust, upon the later of:
(A)filing of the articles of merger
by the Secretary of State; or
(B) subject to Section 204(c)(2),
(3), or (4), as specified in the articles of merger; or
(2) if the surviving
organization is not a statutory trust, as provided by the governing law of the
surviving organization.
Comment
Principal
Source – Uniform Limited Partnership Act §1108 (2001).
Under Section 103(c)(12), this
Section is not subject to override by the governing instrument.
(a) When a merger becomes effective:
(1) the surviving
organization continues or comes into existence;
(2) each constituent
organization that merges with the surviving organization ceases to exist as a
separate organization;
(3) all property owned
by each constituent organization that ceases to exist vests in the surviving
organization;
(4) all debts,
obligations, and other liabilities of each constituent organization that ceases
to exist continue as debts, obligations, or other liabilities of the surviving
organization;
(5) an action or
proceeding pending by or against any constituent organization that ceases to
exist continues as if the merger had not occurred;
(6) except as prohibited
by other law, all of the rights, privileges, immunities, powers, and purposes
of each constituent organization that ceases to exist vest in the surviving
organization;
(7) except as otherwise
provided in the plan of merger, the terms and conditions of the plan of merger
take effect; and
(8) if the surviving
organization is created by the merger:
(A) if it is a statutory trust, the certificate of trust
becomes effective; or
(B) if it is an organization other than a statutory trust,
the organizational document that creates the organization becomes effective;
and
(9)
if the surviving organization preexisted the merger, any amendment provided for
in the articles of merger for the organizational document that created the
organization becomes effective.
(b) A surviving organization that is
a foreign organization consents to the jurisdiction of the courts of this state
to enforce any debt, obligation, or other liability owed by a constituent
organization if, before the merger, the constituent organization was subject to
suit in this state on the obligation. A
surviving organization that is a foreign organization not authorized to do
business in this state appoints the [Secretary of State] as its agent for
service of process for the purposes of enforcing a debt, obligation, or other
liability under this subsection. Service
on the [Secretary of State] under this subsection is made in the same manner
and with the same consequences as provided in Section 213(c) and (d).
Comment
Principal
Source – Uniform Limited Partnership Act §1109 (2001).
Under Section 103(c)(12), this
Section is not subject to override by the governing instrument.
SECTION
710. [ARTICLE] NOT EXCLUSIVE. This [article] does not preclude an organization
from being converted or merged under law other than this [act].
Comment
Principal
Source – Uniform Limited Partnership Act §1113 (2001).
SECTION 801. EVENTS CAUSING DISSOLUTION. A statutory trust is dissolved, and its
activities must be wound up, upon the occurrence of:
(1) an event or
circumstance that the governing instrument states causes dissolution; or
(2) an
administrative dissolution under Section 805.
Comment
Principal Source – Revised Uniform
Limited Liability Company Act §701 (2006).
Consistent
with Section 306, which provides as a default rule that a statutory trust has
perpetual existence, this Section provides that a statutory trust is dissolved
upon the occurrence of an event or circumstance stated in the governing
instrument.
Under
Section 103(c)(1), the provisions of this section are not subject to override
by the governing instrument. However,
the governing instrument need not provide for an event or circumstance that causes
dissolution. See Section 306.
SECTION 802. WINDING UP.
(a)
A dissolved statutory trust shall wind up its activities, and the trust
continues after dissolution only for the purpose of winding up.
(b)
In winding up its activities, a statutory trust shall:
(1)
discharge the trust’s debts, obligations, and other liabilities, settle and
close the trust’s activities, and marshal and distribute the assets of the
trust; and
(2)
deliver to the [Secretary of State] for filing a statement of dissolution
stating the name of the trust and that the trust is dissolved;
(c)
In winding up its activities, a statutory trust may:
(1)
preserve the trust’s activities and property as a going concern for a
reasonable time;
(2)
institute, maintain, and defend actions and proceedings, whether civil,
criminal, or administrative;
(3)
transfer the trust’s property;
(4)
settle disputes;
(5)
perform other acts necessary or appropriate to the winding up.
(d) On application of any person
that shows good cause, the [appropriate court] may appoint a person to be a
receiver for a dissolved statutory trust with the power to undertake any action
that might have been done by the trust during its winding up if the action is
necessary for final settlement of the trust.
Comment
Principal
Source – Revised Uniform Limited Liability Company Act §702 (2006);
Delaware Limited Liability Company Act §18-805.
If the governing instrument of a
statutory trust provides for the dissolution of the trust, then upon the event
or circumstance that triggers dissolution, the statutory trust may continue only
for the purpose of winding up.
In winding up the statutory trust
within a reasonable time, the trustees are neither required to undertake a fire
sale of the assets of the statutory trust on unfavorable terms nor permitted to
continue the trust endlessly under the guise of winding down. The question of what period of time is
“reasonable” under paragraph (c)(1) turns on the totality of the
circumstances.
Paragraph (d)
provides for the possibility that after dissolution additional unfinished
business of the statutory trust is discovered.
Under
Section 103(c)(1), the provisions of this section are not subject to override
by the governing instrument.
SECTION 803. KNOWN CLAIMS AGAINST DISSOLVED STATUTORY TRUST.
(a)
Except as otherwise provided in subsection (d), a dissolved statutory trust may
give notice of a known claim under subsection (b), which has the effect
provided in subsection (c).
(b)
A dissolved statutory trust may in a record notify its known claimants of the
dissolution. The notice must:
(1)
specify the information required to be included in a claim;
(2)
provide a mailing address to which the claim is to be sent;
(3)
state the deadline for receipt of the claim, which may not be less than 120
days after the date the notice is received by the claimant; and
(4)
state that the claim will be barred if not received by the deadline.
(c)
A claim against a dissolved statutory trust is barred if the requirements of
subsection (b) are met and:
(1)
the claim is not received by the specified deadline; or
(2)
if the claim is timely received but rejected by the trust:
(A)
the trust notifies the claimant in a record that the claim is rejected and will
be barred unless the claimant commences an action against the trust to enforce
the claim within 90 days after the claimant receives the notice; and
(B)
the claimant does not commence the required action within the 90 days.
(d)
This section does not apply to a claim based:
(1)
on an event occurring after the effective date of dissolution; or
(2)
a liability that on that date is unmatured or contingent.
Comment
Principal
Source – Revised Uniform Limited Liability Company Act §703 (2006).
Under Section 103(c)(1), the
provisions of this section are not subject to override by the governing
instrument.
SECTION 804. OTHER CLAIMS AGAINST DISSOLVED STATUTORY TRUST.
(a)
A dissolved statutory trust may publish notice of its dissolution and request
persons having other claims against the trust to present them in accordance
with the notice.
(b)
The notice authorized by subsection (a) must:
(1)
be published at least once in a newspaper of general circulation in the
[county] in this state in which the dissolved statutory trust’s principal
office is located or, if it has none in this state, in the [county] in which
the trust’s designated office is or was last located;
(2)
describe the information required to be contained in a claim and provide a
mailing address to which the claim is to be sent; and
(3)
state that a claim against the trust is barred unless an action to enforce the
claim is commenced within [five] years after publication of the notice.
(c)
If a dissolved statutory trust publishes a notice in accordance with subsection
(b), unless the claimant commences an action to enforce the claim against the
trust within five years after the publication date of the notice, the claim of
each of the following claimants is barred:
(1)
a claimant that did not receive notice in a record under Section 803;
(2)
a claimant whose claim was timely sent to the trust but not acted on; and
(3)
a claimant whose claim is contingent at, or based on an event occurring after,
the effective date of dissolution.
(d)
A claim not barred under this section may be enforced:
(1)
against a dissolved statutory trust, to the extent of its undistributed assets;
and
(2)
if assets of the trust have been distributed after dissolution, against a
beneficial owner to the extent of that person’s proportionate share of the
assets distributed to the beneficial owner after dissolution, but a beneficial
owner’s total liability for all claims under this paragraph does not exceed the
total amount of assets distributed to the beneficial owner after dissolution.
Comment
Principal
Source – Revised Uniform Limited Liability Company Act §704 (2006).
Under
Section 103(c)(1), the provisions of this section are not subject to override
by the governing instrument.
SECTION 805. ADMINISTRATIVE DISSOLUTION.
(a)
The [Secretary of State] may dissolve a statutory trust administratively if the
trust does not:
(1) appoint and maintain
an agent for service of process;
(2) deliver for filing a
statement of change within 30 days after a change has occurred in the name or
address of the agent;
(3) file an annual report;
or
(4) pay, within 60 days
after the due date, any fee, tax, or penalty due to the [Secretary of State].
(b) If the [Secretary of State]
determines that a ground exists for administratively dissolving a statutory
trust, the [Secretary of State] must file a notice of dissolution and send a
copy to the trust’s agent for service of process, or if the trust does not have
an agent for service of process in this state, to the trust’s designated
office. The notice must state:
(1) the effective date
of the dissolution, which must be at least 60 days after the date the
[Secretary of State] sends the copy; and
(2) the basis for the
revocation.
(c) Unless a statutory trust cures
the failures to comply with subsection (a) stated in the notice of dissolution before
the date stated in the notice, the [Secretary of State] shall dissolve the
trust administratively by preparing, signing, and filing a declaration of
dissolution that states the grounds for dissolution. The [Secretary of State] shall file a notice
of dissolution and send a copy to the trust’s agent for service of process, or
if the trust does not have an agent for service of process in this state, to
the trust’s designated office.
(d)
A statutory trust that has been administratively dissolved continues in
existence but, subject to Section 806, may carry on only activities necessary
to wind up its activities and liquidate its assets under Sections 802 and 808
and to notify claimants under Sections 803 and 804.
(e)
The administrative dissolution of a statutory trust does not terminate the
authority of its agent for service of process.
Comment
Principal
Source – Revised Uniform Limited Liability Company Act §705 (2006).
Under Section 103(c)(1), the
provisions of this section are not subject to override by the governing
instrument.
SECTION 806. REINSTATEMENT FOLLOWING ADMINISTRATIVE
DISSOLUTION.
(a)
A statutory trust that has been administratively dissolved may apply to the
[Secretary of State] for reinstatement.
The application must be delivered to the [Secretary of State] for filing
and state:
(1)
the name of the trust and the effective date of its dissolution;
(2)
that the grounds for dissolution did not exist or have been eliminated; and
(3)
that the trust’s name satisfies the requirements of Section 207.
(b)
If the [Secretary of State] determines that an application under subsection (a)
contains the required information and that the information is correct, the
[Secretary of State] shall prepare a declaration of reinstatement that states
this determination, sign and file the original of the declaration of
reinstatement, and send a copy to the trust’s agent for service of process.
(c)
When a reinstatement becomes effective, it relates back to and takes effect as
of the effective date of the administrative dissolution and the statutory trust
may resume its activities as if the dissolution had not occurred.
Comment
Principal
Source – Revised Uniform Limited Liability Company Act §706 (2006).
Under Section 103(c)(1), the
provisions of this section are not subject to override by the governing
instrument.
SECTION 807. APPEAL FROM REJECTION OF REINSTATEMENT.
(a)
If the [Secretary of State] rejects a statutory trust’s application for
reinstatement following administrative dissolution, the [Secretary of State]
shall send a notice that explains the reason for rejection to the trust’s agent
for service of process.
(b) A statutory
trust may appeal from the rejection by petitioning the [appropriate court] to
set aside the dissolution. The petition
must be delivered to the [Secretary of State] and contain a copy of the
[Secretary of State’s] declaration of dissolution, the trust’s application for
reinstatement, and the [Secretary of State’s] notice of rejection.
(c)
The court may order the [Secretary of State] to reinstate a dissolved statutory
trust or take other action the court considers appropriate.
Comment
Principal
Source – Revised Uniform Limited Liability Company Act §707 (2006).
Under Section 103(c)(1), the
provisions of this section are not subject to override by the governing
instrument.
SECTION 808. DISTRIBUTION OF ASSETS IN WINDING UP
STATUTORY TRUST’S ACTIVITIES.
(a)
In winding up its activities, a statutory trust shall first apply its assets to
discharge its obligations to creditors.
(b)
After a statutory trust complies with subsection (a), any surplus must be
distributed to the beneficial owners in proportion to their beneficial
interests.
Comment
Principal
Source – Revised Uniform Limited Liability Company Act §708 (2006).
Under
Section 103(c)(1), Section 808(a) is not subject to override by the governing
instrument.
[This article, which has been presented at two prior annual
meetings, will be revised to conform with the new uniform business
organizations act being read at this annual meeting. Hence it is not presented here.]
[ARTICLE] 10
SECTION 1001. UNIFORMITY OF APPLICATION AND CONSTRUCTION. In applying and construing this uniform act,
consideration must be given to the need to promote uniformity of the law with
respect to its subject matter among states that enact it.
Comment
Principal
Source – Uniform Limited Partnership Act §1201 (2001).
Under Section 103(c)(1), this Section
is not subject to override by the governing instrument.
SECTION 1002. RELATION TO ELECTRONIC SIGNATURES IN GLOBAL
AND NATIONAL COMMERCE ACT. This [act] modifies, limits, or supersedes
the federal Electronic Signatures in Global and National Commerce Act[, 15
U.S.C. Section 7001 et seq.], but this [act]
does not modify, limit, or supersede Section 101(c) of that act or authorize
electronic delivery of any of the notices described in Section 103(c) of that act.
Comment
Principal
Source – Uniform Limited Partnership Act §1203 (2001).
Under Section 103(c)(1), this
Section is not subject to override by the governing instrument.
SECTION 1003. SAVING CLAUSE. This [act] does not affect an action
commenced, proceeding brought, or right accrued before this [act] takes effect.
Comment
Principal
Source – Uniform Limited Partnership Act §1207 (2001).
Under Section 103(c)(1), this
Section is not subject to override by the governing instrument.
SECTION 1004. RESERVATION OF POWER TO AMEND OR REPEAL. The [name of state legislature] has power to
amend or repeal all or part of this [act] at any time and all statutory trusts
and foreign statutory trusts subject to this [act] are governed by the
amendment or repeal.
Comment
Principal
Source – Revised Model Business Corporation Act §1.02 (2002).
[Further
comment to come. Based on Section 1.02
of the Model Business Corporation Act, this section addresses the rule of Trustees
of Dartmouth College v. Woodward, 17 U.S. (4 Wheat) 518 (1819), which holds
that a state may not modify the enabling legislation of an existing business
entity unless the power to do so is reserved to the state in the enabling
legislation.]
Under Section 103(c)(1), this
Section is not subject to override by the governing instrument.
(a) This [act] does not limit,
prohibit, or invalidate the existence, acts, or obligations of any common-law
trust created or doing business in this state before or after [the effective date
of the act]. The laws of this state
other than this [act] pertaining to trusts apply to common-law trusts.
(b) A common-law trust arising under
the law of this state before or after [the effective date of this [act]] that
does not have a prevailingly donative purpose may elect to be governed by this
[act] by filing of a certificate of trust under Section 201.
[(c) A trust created pursuant to a
statute of this state that was required by that statute to file a certificate
of trust with [the Secretary of State] before [the effective date of this [act]]
may elect to be governed by the provisions of this [act] by filing an amendment
to its certificate of trust under Section 202.]
[(d) On [two years] after [the
effective date of this [act]], this [act] governs the organization and internal
affairs of all trusts created pursuant to a statute of this state that was
required by that statute to file a certificate of trust with the [Secretary of
State] before the effective date of this [act].]
Comment
Principal
Source – Uniform Limited Partnership Act §1206 (2001).
This Act governs all statutory
trusts formed on or after the Act’s effective date. For pre-existing statutory trusts, this
section establishes an optional “elect in” period and a mandatory, all-inclusive
date of two years following the effective date.
Beginning on the all-inclusive date, each pre-existing statutory trust
that has not previously elected in becomes subject to this Act—including the
schedule of mandatory rules in Section 103(c)—by operation of law.
Paragraphs (a) and (b) confirm that
this act does not govern a common-law trust unless the trust forms a statutory
trust by filing a certificate of trust under Section 201. However, consistent with Section 302, paragraph
(b) of this Section prohibits a common-law trust with a prevailingly donative
purpose from becoming a statutory trust. An alternative mode for a common-law
trust to become a statutory trust is provided by the conversion provisions of Article
6. Unlike the formation of a new
statutory trust by filing a certificate of trust under Section 201, the
conversion provisions of Article 6 allow for the conversion of another
organization into the statutory trust form while preserving continuity in the
converting organization’s relationships with third parties. See the Comments to Sections 701 and 705.
The drafting committee contemplated
that some enacting jurisdictions might modify this section—particularly
paragraphs (c) and (d), which are bracketed to signal that uniformity is not
expected—to address other transition problems arising from differences between
this Act and prior law. For example, an
enacting jurisdiction might choose to allow trusts formed under a prior statute
to remain governed by the prior statute for longer than the two years suggested
in paragraph (d).
Under Section 103(c)(1), this
Section is not subject to override by the governing instrument.
SECTION 1006. REPEALS. On
[all-inclusive date], the following acts are repealed:
(1) [the state Statutory Trust Act
as amended and in effect immediately before [the effective date of this [act]]];
(2) [the state Business Trust Act as
amended and in effect immediately before [the effective date of this [act]]];
and
(3) [the state Real Estate
Investment Trust Act as amended and in effect immediately before [the effective
date of this [act]]].
Comment
Principal
Sources – Uniform Limited Partnership Act §1205 (2001).
Paragraphs (1) and (2) supply model language for enacting jurisdictions
that have previously enacted a Statutory Trust Act or a Business Trust
Act.
Paragraph
(3) supplies model language for enacting jurisdictions that have previously
enacted a Real Estate Investment Trust statute.
A real estate investment trust, also known as a REIT, is not a type of
trust but rather is a tax status awarded to any entity that qualifies under 26
U.S.C. §§856 et seq., or that qualifies as a real estate mortgage investment
conduit under 26 U.S.C. §860D. Although
the Internal Revenue Code at one time favored the trust form for the
organization of a REIT, the code today does not regulate the form of entity. Accordingly, there is no longer any reason
why a REIT must be organized as a trust, whether statutory or common law. Indeed, in contemporary practice most publicly-traded
REITs are organized as Maryland corporations, not as trusts. See Robert H. Sitkoff, The Rise of the
Statutory Business Trust __ [citation]. Nonetheless,
prior to the liberalization of the tax code, a number of states enacted REIT
statutes that authorize the creation of a trust entity designed to qualify as a
REIT under the code. Because a statutory
trust under this Act could serve the same purpose, the drafting committee
contemplated that enacting jurisdictions might take the occasion of enacting this
act to repeal their REIT statutes.
Under Section 103(c)(1), this
Section is not subject to override by the governing instrument.
SECTION 1007. EFFECTIVE DATE. This [act] takes effect . . . .
Comment
Principal
Source – Uniform Limited Partnership Act §1204 (2001).
Section 1005 specifies how this Act
affects statutory trusts, with special provisions pertaining to statutory
trusts formed before the Act’s effective date.
Section ___[article 9 problem] contains no comparable provisions for
foreign statutory trusts. Therefore,
once this Act is effective, it applies immediately to all foreign statutory
trusts, whether formed before or after the Act’s effective date.
Under Section 103(c)(1), this
Section is not subject to override by the governing instrument.
