30/04/2018

To err is human, but to forgive needs a Deed of Rectification.         Jeff Song has more.

Here at Townsends we regularly see cases where third parties, such as a bank, auditor or ATO, requests the trustees of an SMSF to correct an error in the trust deed of the fund.

Common errors include typographical errors in the names of the fund, trustee and/or a member. These may seem insignificant but could potentially cause a big problem if the documents ever needed to be examined by a court or regulator.

Let’s look at an example.

John and Jane are directors of a corporate trustee for the York Superannuation Fund and they have decided to take advantage of the popular investment market through a limited recourse borrowing arrangement (LRBA).

They set up and appoint a holding trustee company to exchange a contract of sale to buy a property. On behalf of the fund, they also apply for and are granted an approval for an LRBA loan from a commercial bank.

A week prior to settlement, the bank sends an urgent email requesting correction of a typographical error in the name of the fund trustee on the current trust deed. The bank says it cannot advance the loan until the error is properly corrected.  Delay in settlement will not only be stressful but also costly.

The solution is a Deed of Rectification which rectifies (fixes) the incorrect information contained in the fund deed.

John and Jane, as signatories to the original fund deed, sign a Deed of Rectification to confirm that the particular information of concern contained in the previous deed is in fact an error, and to replace the incorrect information with the accurate version.

A Deed of Rectification does not have the effect of replacing the previous deed, and should be kept and read in conjunction with the previous deed.

Before proceeding with preparation and signing of the Deed of Rectification, it is important to check with the bank (or other third party concerned) that such a Deed will be sufficient for their purposes to address their concern.

If you are in need of a Deed of Rectification please speak to one of our SMSF lawyers at Townsends Business & Corporate Lawyers on (02) 8296 6222 or info@townsendslaw.com.au to see how we can assist.