COVID-19: The Ultimate Lesson in Fiduciary Responsibility

The rapidly developing Coronavirus pandemic has, in pretty short order, forced trustees and other fiduciaries to make significant changes to the ways in which they operate. Any pre-conceived notion that a one-size-fits-all approach suits fiduciary practice has been blown out of the water. Exceptional market volatility, the rapidly changing employment landscape and a greatly reduced ability to continue ordinary commercial activities, have intensified the oversight, skill and care we as trustees have to apply in the fulfilment of our duties. Whilst each trustee will be fighting their own pandemic-fuelled fires, these are some of the common battles being fought across the fiduciary landscape to preserve the interests, trust and confidence of those we serve:

Beneficiary needs: As economic instability continues, the needs of many beneficiaries are becoming more immediate and acute. Unemployment, reduced income from other sources, falling capital values and lending covenant breaches are just some of the current impacts. That said, a trustee can only act to alleviate these hardships if it continues to listen and to make itself available. Prudent trustees are therefore increasing their beneficiary dialogue in the current climate so that they can properly assess the extent of the pandemic’s personal impact on any given individual. In some cases, a beneficiary’s need may not be limited to direct financial help; we are witnessing impacts on both physical and mental well-being which often demand assistance of a different nature.

Investment monitoring: Trustees should be increasing the intensity of their monitoring activities in relation to portfolios, trading situations, cash flow, creditor positions, loan and security arrangements and key contracts. Direct contact with investment managers and clients has increased, with many now agreeing more frequent patterns of reporting. Almost as importantly, we need to ensure that we are documenting these considerations and giving adequate thought to whether or not our actions will be judged as having been reasonable in the context of today’s highly unusual circumstances.

Trading companies: Trustees are increasing their oversight and management of trading undertakings in the hope of staving off, amongst other things, solvency issues. They are having to formulate plans to support these businesses and to balance what are, hopefully, short-term cash flow needs against the longer-term interests of beneficiaries. This is easier said than done, particularly in the case of treasured family operations where the need to protect beneficiaries from their own wishes can sometimes come into play. It is perhaps worth questioning whether the placing of blind reliance on Anti-Bartlett style provisions is sensible in these extraordinary circumstances.

Bank ratings: It is incumbent upon trustees to satisfy themselves that the custody of cash they maintain for the benefit of others is in safe hands. Most trustees will therefore be giving careful consideration to movements in ratings and capitalisations at the moment. Again, the prudent trustee will also be recording its consideration of such matters.

Transaction Management: The ability to have documents witnessed, to execute transactional materials and to hold board meetings by telephone have all come into greater focus over the past few weeks. This has forced fiduciaries to reconsider long since filed constitutional documents, to enhance security measures, to introduce e-signatures and to appoint decision making committees each of which will, hopefully, serve them well in the longer term.

Mind, management and substance: With travel all but extinct for the foreseeable future, many companies face difficulties in ensuring the continuity of decision making in the correct location. Furthermore, and notwithstanding comfort published by various revenue services, Directors are again having to give careful thought to the application of economic substance requirements in circumstances where they cannot travel. This has placed an increased focus on the quality of records relating to core income generating activities (or lack of them outside of certain jurisdictions) and the need for risk registers to be properly maintained.

For those holding fiduciary positions, there is much to do in what will, hopefully, be a relatively short period of turbulence. It will be interesting to see the standards by which fiduciaries’ actions in these remarkable times will be judged. One thing is certain – now, more than ever, fiduciaries need to make time to step back and ask themselves whether, when the dust settles, they have done enough and, importantly, whether their records reflect the considerable lengths they are currently going to.

The pandemic’s human toll is unquestionable and searching for an upside to the current situation is nigh on impossible. Yet there is hopefully a silver lining: increased time with our families, a greater focus on the needs of others and, above all, an exposure to remarkable acts of personal sacrifice can only serve to enhance our compassion for those we have a duty to protect and our ability to act as bon père de famille.

Written by Catja Carrell and Andrew Walters