LegCo Subcommittee on MPF System
Information Note
Replacement of Trustees

Purpose

This paper describes the proposed arrangements for the appointment of a replacement trustee following suspension or removal of an approved trustee by the MPF Authority (MPFA) or following the trustee's own retirement, comprising :

  1. corporate trustee to find own replacement on suspension, removal or retirement (paragraph 2 below);

  2. replacement of corporate/individual trustee of an employer sponsored scheme (paragraph 3 below);

  3. appointment of replacement trustee by the Authority (paragraphs 4 and 5 below) ; and

  4. winding up of schemes (paragraph 6 below).

Proposal

Corporate Trustee to find own Replacement on Suspension, Removal or Retirement

2. We propose that-

  1. in the event the corporate trustee of a master trust scheme is to be suspended or removed, the Authority should consider the replacement trustee recommended by the original trustee to facilitate the orderly transfer of scheme management; and

  2. a corporate trustee must seek approval of the MPFA prior to his resignation or retirement. The corporate trustee's retirement may only be accepted if he has found an approved trustee willing to replace him.

Replacement of Corporate/I ndividual Trustee of an Employer Sponsored Scheme

3. We propose that in the event of the Authority's decision to suspend or remove the corporate or individual trustee(s) of an employer sponsored scheme resulting in the remaining trustees (if any) not able to meet the trusteeship requirements, the employer, the persons/body responsible for the appointment of trustees and/or the remaining trustees should :

  1. select new individual trustee(s) or an approved corporate trustee; or

  2. transfer the scheme to a registered master trust scheme.

Appointment of Replacement Trustee by the Authority

4. There may be difficulties for the original corporate trustee, the employer, the persons/body responsible for appointment of trustees and/or the remaining trustees to find a replacement trustee or an appropriate arrangement for scheme management. We propose that the Authority should :

  1. appoint a replacement trustee; and

  2. determine a level of fee appropriate for the replacement trustee.

5. Where there are additional expenses to be incurred to enable the replacement trustee to rectify problems of the scheme, the additional expenses should be -

  1. borne by the scheme assets; or

  2. if there is misfeasance or illegal conduct by the original trustee or other service providers,

    1. recovered from the trustee including his performance guarantees and the professional indemnity cover of the original trustee or his service providers; or

    2. compensated by the Compensation Fund as determined by the court on application of the MPFA.

Winding up of Schemes

6. There may be extreme circumstances that the status of the scheme assets is so problematic that no approved trustee is willing to take up the replacement trustee duty and that it is impossible to transfer the scheme management to another master trust scheme. Under these circumstances, we propose that the MPFA should apply to the court for an order for the winding up of the MPF scheme if it has reasons to believe that it is in the best interests of the scheme members to wind up the scheme.

Justification

Corporate Trustee to find own Replacement on Suspension, Removal or Retirement

7. The proposals in paragraph 2 above draw on a trustee's general law duties of prudence, good faith and care to arrange for a successor trustee to replace him in the event of suspension, removal or retirement. The duty of good conduct demanded from a fiduciary also requires the trustee to ensure an orderly transfer of scheme management to his successor. The Authority would consider the suitability of the recommended successor on taking over of the scheme management.

8. The proposal in paragraph 2(b) above is envisaged as an implied "must" clause for all MPF approved trust deeds, as commonly found in other legislated pension environments.

Replacement of Corporate/Individual Trustee of an Employer Sponsored Scheme

9. As regards the replacement of trustee of an employer sponsored scheme, the employer, the persons/body responsible for appointment of trustees and/or the remaining trustees also have the obligation to safeguard scheme members' interest by seeking for a replacement trustee. The proposal in paragraph 3 above is intended to specify the various courses of action that the employer, the persons/body responsible for appointment of trustees and/or the remaining trustees can take.

Appointment of Replacement Trustee by the Authority

10. There are situations where the replacement trustee cannot be identified or arranged through voluntary actions of the original trustee, the employer and/or the persons/body responsible for appointment of trustee, particularly when the original trustee is removed or suspended due to deficiencies in scheme management. When such situations arise, the Authority will need to take action to appoint a replacement trustee so that the scheme management will not stall.

11. Under section 33(5) of the Ordinance, the Authority has the power to determine the terms and conditions of appointment of a replacement approved trustee, including the payment of any fees to that replacement trustee. If the Authority is satisfied that it is indeed necessary to incur a higher fee to rectify the condition of the scheme management, it would be reasonable for the scheme assets to bear the additional cost. On the other hand, such additional cost may be recovered from the original trustee, his performance guarantees, the professional indemnity insurance and the Compensation Fund if there is misfeasance and illegal conduct by the original trustee or other service providers.

Winding Up of Schemes

12. Winding up of a scheme becomes necessary if the MPFA is unable to find a replacement trustee after sanctioning a trustee. We envisage that under such circumstances it is highly likely that the scheme itself already has serious operational problems and the interests of the scheme members may be adversely affected if the scheme is not wound up.


Mandatory Provident Fund Office
Financial Services Branch
12 March 1997

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