The business judgement rule for trustees

In a recent blog I proposed the idea that the trustees of superannuation funds could demonstrate independence of mind by using the framework offered by the business judgement rule.

Specifically, section 180(2) of the corporations act provides various protections for directors if they:

“(a)         make the judgment in good faith for a proper purpose; and

(b)          do not have a material personal interest in the subject matter of the judgment; and

(c)           inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and

(d)          rationally believe that the judgment is in the best interests of the corporation [for corporation, read beneficiary].”

I indicated that trustees need to demonstrate a higher standard with respect to (b) above in that they need to show that the decision was not made to materially benefit the various sponsors or promoters of the fund as well as not benefiting them personally.

In practice the trustee needs to be able to show that their decisions would have been rational to any prudent superannuation trustee. The burden of proof is that the trustees are able to demonstrate to a prudent superannuation trustee aka APRA:

1. that they adopted appropriate processes to make the decisions,
2. that they had sought and received sufficient information to make the decisions and,
3. that they made the decisions with the aim of promoting the interests of the member only i.e. not their own interests or the profit or ideological interests of the fund promoters or sponsors.

My suggestion would be that where material decisions are made by the trustees that the agenda and the minutes reflect each of these steps separately and that the trustees pass a resolution that each step has been agreed collectively. Whilst it is never possible to expect to be able to secure all the information required to be completely confident about a decisions the judgement that sufficient information has been provided will need to be agreed by the board as a whole.