Research On The Liquidation Obligations Of Trustee

Trust liquidation is the final stage of the life cycle of a trust,and the successful completion of liquidation matters depends on the proper performance of the liquidation obligations by the liquidator.The current law on trusts in China provides for the liquidation phase of trusts in a relatively brief manner.There is no explicit provision on whether the subject of liquidation obligation is limited to the trustee,what is the content and specific performance standard of liquidation obligation,and what is the liability for breach of liquidation obligation.There are controversies in judicial practice and in theory.This article tries to trust law and the general provisions of the civil law between the system of coordination as a perspective,to interpret the theory as a foothold,try to explore the trust after the termination of the liquidation obligations of general issues.The scope of trusts referred to in this article is not limited to business trusts or commercial trusts but focuses on the general issues of trust law as a perspective.This paper is divided into four chapters.The first chapter focuses on the formulation of the problem.This chapter first compares the current legislative and judicial status of trust liquidation in China.The current law on trusts in China generally provides for liquidation obligations in a relatively abbreviated and scattered manner.In judicial practice,disputes at the liquidation stage focus on when the trustee constitutes a breach of the liquidation obligation and the propriety of the manner in which the trust property is distributed in its original state.Theoretically,the issues that need to be discussed include how to understand the point of occurrence of the liquidation obligation(the cause of termination of the trust),the scope of the subject of the liquidation obligation,the specific content of the liquidation obligation,and the nature of the liability arising from the breach of the liquidation obligation and the way to assume the liability.Chapter 2 discusses the cause of liquidation and the subject of the obligation.Once the trust is terminated,the liquidator should fulfill the liquidation obligation.The termination of the trust can be stipulated by the trust document itself,such as the provision of extension of liquidation,which is quite common in practice and is reasonable and should be valid in principle.In combination with the principles of trust law and the nature of the trust relationship,the consequences of a trust being dissolved or revoked should not be retroactive,i.e.,no return relationship occurs,and the trust is only extinguished in the future.The liquidation obligation after the termination of the trust is in principle the trustee,unless the trust document provides otherwise,in a passively managed trust,the principal or beneficiary is not obliged to liquidate.The trustee simply transfers the trust property to the principal or other rights vested in it by way of distribution in its original state,which is the fulfillment of the liquidation obligation,and the trustee does not assume substantial liquidation duties.If the trust needs to be liquidated and disposed of after termination,it should be done by the principal and other subjects with substantial management functions,and the trustee is not responsible for this.The Securities Investment Fund Law has special provisions on the composition of the liquidation group after the termination of a fund.Within the scope of application of the Securities Investment Fund Law,the determination of the liquidation subject is based on this special provision,but it does not automatically apply this provision by analogy or by reference to other trust relationships(including various capital management plans)that do not fall within the scope of application of the Securities Investment Fund Law.Chapter 3 discusses the content,boundaries and performance standards of the liquidation obligation.The duty of liquidation is in principle a continuation of the trustee’s fiduciary duty in the trust liquidation phase,with appropriate adaptations or adjustments depending on the nature of the trust liquidation.The trustee enjoys the authority necessary or appropriate for liquidation,and still have fiduciary duties.In principle,a more flexible and elastic standard should be adopted for the trustee’s authority in liquidation in order to adapt to the reality of diversified investments and to avoid overly rigid and harsh rules that may excessively inhibit the trustee’s discretionary power in liquidation activities and thus jeopardize the realization of the interests of the right-holders.In liquidation,the trustee shall settle the existing trust affairs,pay off the trust debts,distribute the remaining property,and take necessary measures to preserve the trust property,including participating in litigation activities,arbitration activities and other dispute resolution activities that are not required to deal with the trust liquidation matters,and the trustee has both the authority and obligation to perform the above-mentioned acts.The settlement of debts in the trust liquidation phase is subject to the same principles as in the trust survival phase.After settling the trust debts,the trustee may distribute the remaining trust property to the beneficiaries or other rights holders.If the trust document does not specifically provide,the trustee may adopt various appropriate distribution methods,including distribution in cash,distribution in kind(distribution in kind)or a combination of distribution methods.Chapter 4 discusses the liability in case of non-performance of liquidation obligations.First of all,regarding the nature of liability,theoretically there exists the breach of contract liability theory,the tort liability theory and the independent statutory liability theory(liability for breach of fiduciary duty),and each of the three interpretation paths has its own advantages.The breach of contract liability theory is consistent with the situation of contractual trusts but cannot be applied to the situation where the trust is not established by contract,nor can it explain the scenario where the trustee is not the liquidation obligor.However,the breach of contract theory can provide support for a claim for indemnification and performance benefits by the person whose rights are vested and can also provide a basis for a trust contract to agree on liquidated damages liability for breach of liquidation obligations.As for in other benefit trusts,the breach of contract liability theory itself is not an obstacle,because the legal provisions on the contract of third party in interest can provide a basis for the beneficiary to hold the trustee liable for breach of liquidation obligation.The tort liability doctrine helps to avoid some of the shortcomings of the breach of contract liability doctrine and can explain the liability of the liquidating obligor in the absence of a contractual relationship.In the liquidation phase of a trust,the rights enjoyed by the person whose rights are vested are regarded as beneficial rights,and beneficial rights are the type of civil rights expressly provided for in the current law,which can constitute the object of tort liability.The shortcoming of the breach of contract and tort liability theory is that it is difficult to explain the imputation remedy unique to trust law,i.e.,the trustee’s breach of fiduciary duty and the benefit received will be imputed to the trust property.Since such interest is part of the trust property,it has trust property independence,and if the trustee and other liquidating obligors dispose of it in violation of the law,the beneficiary has the right to claim revocation according to the provisions of the trust law,i.e.,the beneficiary’s right of revocation has a certain degree of exequatur.This legal effect is difficult to be explained by the theory of breach of contract and tort liability,which have the nature of debt law relationship,but belongs to the unique structure of fiduciary duty law.The independent statutory liability theory(liability for breach of fiduciary duty)can help explain this unique legal effect in trust law.Second,in terms of liability,it is worth exploring the question of how to be liable when several liquidating obligors co-exist.It is not appropriate to interpret the trust law on the liability of co-trustees as meaning that co-trustees must be jointly and severally liable regardless of any circumstances,but that there should be room for exemption from liability for trustees who jointly commit breaches of duty.This is also consistent with the general principles of organic law.