The Trustee – To Have or Not To Have

March 11, 2020

Bolanle Oyelade, Corporate Trust Officer, TSX Trust

Corporate Trust

The corporate trustee's role is sometimes considered a regulatory inconvenience, an unnecessary bottleneck, or an additional avoidable cost in various contexts. However, the value of having a trustee on transactions cannot be overstated. Think of it as similar to entering into a contract with a dispute resolution provision, or even an exit clause. When parties agree to enter into a relationship with each other, they do so on friendly terms and with the expectation that the relationship will pan out. However, this is not always the case, as there are countless examples of situations going awry. That's where the trustee can make a significant difference.

A corporate trustee is guided by and within the terms of a trust indenture, which is a contract setting out the rights, duties and obligations of the issuer and its investors. As a result, the trustee acts as a conduit between the two parties. The corporate trustee's typical role on a debt issue often includes a myriad of agency related functions such as maintaining the register of debt holders, distributing interest and redemption payments, processing administrative components of the debt attributes, as well as sometimes executing tax related functions.

The main responsibility of the corporate trustee, however, is the fiduciary duty it has to the investors. When a debt issue completes its full life cycle without any problem, it may appear that the corporate trustee just earned fees for simply being "the Trustee" on the transaction and performing the related administrative tasks that may as well have been self-administered by the issuer.

Imagine for a minute, however, that the situation is the reverse and that the debt issue did not mature as anticipated. In this case, an issuer may find itself in the impossible situation of trying to manage a defaulted debt issue on its own, facing a number of thorny issues it does not have experience in handling, and using limited resources to respond to a wide swath of requirements imposed by what could be a large and varied base of investors.

Aside from the strain on an issuer's employees and other resources, the self-administering defaulting issuer would be conflicted, because such an issuer is unable to act objectively in the best interest of its investors. The value of an unbiased third party serving as an independent, experienced and professional representative of investor interests is invaluable.

At the time of default or an "event of default", the critical function of the trustee is a fiduciary one -- a role which the self-administering issuer is unable to assume. While we at TSX Trust understand that each default situation is different, the role of a corporate trustee as an ideal representative of the investors is a critical one. A default situation is typically extremely delicate and difficult. As such, all stakeholders benefit greatly from depth of experience and the services of the best and brightest in the corporate trust field. TSX Trust is a trusted and reliable partner, experienced and capable in helping our issuer clients navigate difficult terrain.

TSX Trust is a federally regulated Canadian trust company with reach across the full breadth of the Canadian financial landscape. Our deep experience in this sector of the financial industry is unmatched. We deliver innovative trust solutions with proven and unwavering expertise, efficiency and professionalism. We have built our business on three key pillars - superior service, depth of expertise and superb execution - which enable our clients to achieve their goals across the full suite of their corporate trust needs.