Valuing a Trustee’s Right of Indemnity

A trustee in bankruptcy is able to make a claim to property held by a bankrupt on trust. For example, by lodging a caveat over a home that is held on trust. In making the claim the Trustee’s relies on the bankrupt’s right of indemnity as trustee of the trust. This is because the bankrupt’s right of indemnity, as trustee, is itself property that vests in the trustee in bankruptcy under the Bankruptcy Act 1966.

I was recently engaged by a Trustee with a view to providing expert evidence effectively valuing a trustee’s right of indemnity. Valuing a right of indemnity can only be fully ascertained upon the taking of the accounts of the trust, which includes the application of what is often referred to as the ‘clear accounts rule’.

The clear accounts rule requires a trustee to make good any loss or damage caused to the trust arising from previous breaches of trust by the Trustee.

In the simplest terms, the value of the right of indemnity is the value of the liabilities of the trust properly incurred by the trustee less any make good required by the trustee from previous breaches by the Trustee less any amount owed by the trustee to the trust.

The value of a trustees right of indemnity was considered in Boensch v Pascoe [2019] HCA 49.