The 2018 Amendments to the Delaware Statutory Trust Act
July 24, 2018
Publication| Corporate Trust & Agency Services
The Delaware General Assembly recently enacted amendments to the Delaware Statutory Trust Act (the “DSTA”) which will become effective August 1, 2018. The amendments make a variety of changes relating to the nature and operation of statutory trusts, including (i) confirming the ability to use blockchain technology to store trust information, issue shares, and conduct trust business, and (ii) updating statutory default rules relating to rights, duties and liabilities of trustees and agents with respect to delegation. These two amendments are described below.
I. Use of Blockchain Technology to Store Trust Information, Issue
Amendments to Sections 3801(a), 3806(f)(2), 3806(g)(2), and 3819(d) provide confirmation that distributed ledger and database technologies (commonly referred to as blockchain technology) may be used to store trust information, issue shares, and conduct trust business. These amendments are intended to further Delaware’s position as a leader in the implementation of rules and regulations related to the use of blockchain technologies by business entities.
Specifically, the amendment to Section 3801(a) provides that the registration of a beneficial interest in a statutory trust may be evidenced electronically, including by means of distributed electronic networks or databases. Likewise, the amendments to Sections 3806(f)(2) and 3806(g)(2) provide that a vote or a proxy of the beneficial owners or the trustees, respectively, may be provided by electronic transmission, including by use of distributed and non-distributed electronic networks or databases. Finally, the amendment to Section 3819(d) provides that the records of a statutory trust may be maintained by means of any information storage device, method, or distributed or non-distributed electronic network.
II. Delegation by Trustees to Agents
Several of the amendments address delegation of rights, powers and duties by trustees to agents, the most significant of which update and enhance the default rule with respect to the relative duties and liabilities of trustees and agents. The rules described below generally can be modified by provisions in a governing instrument of a statutory trust.
The amendment to Section 3803(c) clarifies two points with respect to the liability of agents. First, it clarifies that protection from personal liability extends to any person to whom a trustee has delegated its rights, powers, or duties to manage the business and affairs of the statutory trust pursuant to Section 3806(i) of the DSTA. Second, it exempts the application of Section 3803(c) to trustees, such that an agent remains liable to the trustee.
The amendment to Section 3806(i) clarifies that a trustee may delegate its duties to manage the business and affairs of the statutory trust. Previously, the statute only expressly allowed a trustee to delegate its rights and powers. This amendment removes any ambiguity related to the trustee’s ability to delegate its duties.
New Section 3806(m) replaces the previous default duty of trustees to choose and supervise an officer, employee, manager or other person acting pursuant to Section 3806(b)(7) of the DSTA with more modern and nuanced rules. Specifically, a trustee shall have no duties or liabilities with respect to the selection, supervision, removal, decisions, or actions of, or to exercise or perform the rights, powers or duties of, an officer, employee, manager, or other person acting pursuant to Section 3806(b)(7) or a delegate acting pursuant to Section 3806(i):
(1) to the extent such person is appointed, elected, engaged, or made a delegate by an express provision of the governing instrument or another agreement contemplated thereby;
(2) to the extent the trustee is required to appoint, elect, or engage or delegate to, such person by an express provision of the governing instrument or another agreement contemplated thereby and not pursuant to the discretionary authority of the trustee;
(3) to the extent a trustee makes an irrevocable delegation pursuant to Section 3806(i) and pursuant to the discretionary authority of the trustee, except to exercise the standard of care required of the trustee under the governing instrument or the DSTA in making such decisions when selecting such person and when establishing the scope and terms of the delegation; or
(4) in all other cases, except to exercise the standard of care required of the trustee under the governing instrument or the DSTA in making such decisions when selecting such person, when establishing the scope and terms of the delegation and when reviewing such person’s actions in order to monitor such person’s performance and compliance with the scope and terms of the delegation.
New Section 3806(n) provides for a new default standard of care required of any person acting pursuant to Section 3806(b)(7) and Section 3806(i) of the DSTA. Specifically, any such person shall comply with the scope and terms of its appointment, election, engagement or delegation, as applicable. Additionally, except to the extent otherwise provided in the governing instrument or the terms of such appointment, election, engagement, or delegation, such person shall exercise the rights, powers, and duties subject to the same standard of care required of the trustee under the governing instrument or DSTA and will be liable for any failure to do so.
The DSTA was originally enacted in 1988 to provide greater certainty and flexibility with respect to trusts that are used in business transactions. The Delaware statutory trust is the preeminent form of trust for use in structured finance and investment fund transactions. The 2018 amendments to the DSTA demonstrate Delaware’s dedication to providing a sophisticated and modern body of statutory trust law that meets the changing needs of industry participants in the marketplace of today and the future. Delaware is committed to reviewing and enhancing the DSTA to maintain Delaware’s position as the top jurisdiction in which to form statutory trusts.