Bermuda Trust Overview
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Bermuda Trust Overview

Bermuda Trust Overview

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Bermuda Trust Overview Presentation Transcript

  • 1. Speaker: Tan Li-Lee, Senior Associate Appleby Spurling Hunter, Hong Kong 5 May 2005 © Appleby Spurling Hunter
  • 2. Offshore Jurisdictions and Offshore Funds Conference Introduction to the Cayman STAR Trust and Bermuda Purpose Trust
  • 3. Overview (A) Cayman Islands STAR Trust (B) Bermuda Purpose Trust (C) Further Resources
  • 4. Introduction Singapore
  • 5. Map of Grand Cayman
  • 6. (A) Cayman STAR Trust • British dependent territory • Political and economic stability • International banking and professional facilities • No direct tax • No exchange control • Regularly reviewed and up-to-date business laws
  • 7. (A) Cayman STAR Trust Originally Special Trusts (Alternative Regime) Law 1997 Cayman Islands Trusts Law (2001 Revision) Part VIII, sections 95 – 109 Effective 23 October 1997 • Background • How it works • Opportunities for the STAR Trust
  • 8. (A) Cayman STAR Trust Background General rule – trusts for non-charitable purposes were void 3 conditions: • exclusively charitable purpose previously upheld by court • must not exceed perpetuity period • person to execute and enforce trust
  • 9. (A) Cayman STAR Trust How it works • Secure legal framework – “special trust” • Preservation of existing rules for “ordinary trusts” • To be subject to STAR: (i) written instrument; and (ii) declaration that STAR to apply
  • 10. (A) Cayman STAR Trust How it works • Objects may be – persons – corporations or individuals – purposes – charitable or non-charitable provided lawful, not contrary to public policy – combination of both • Perpetual – S13(1) Perpetuities Law (1999 Revision)
  • 11. (A) Cayman STAR Trust How it works • Not rendered void by uncertainty • Uncertainty may be resolved by – trustee or other person – the court • The court may – reform the trust – settle a plan for its administration; or – as it deems appropriate
  • 12. (A) Cayman STAR Trust How it works • Beneficiaries have no standing to enforce – rule in Saunders v Vautier does not apply • Enforcers – the only persons who have standing to enforce • Must have an enforcer, failing which appointment by court • Obligatory/ voluntary enforcers – “right or duty” unless expressly provided • Beneficiaries may but need not be enforcers
  • 13. (A) Cayman STAR Trust Requirements • Trustee must be/ include a C.I. regulated trust corporation • Trust corporation to keep records at office in C.I. – terms of the special trust – identity of trustee(s) and enforcer(s) – settlements of property and identity of all Settlors, at the end of each accounting year – all distributions or applications of trust property (Court may waive one or more requirements) • No registration
  • 14. (A) Cayman STAR Trust Opportunities for the STAR Trusts • Quasi-charitable trusts, with philanthropic or partly non-charitable purposes • Family trust – Settlor wants to benefit family members but wants to restrict rights of beneficiaries to information and enforcement • Succession of family business – income for benefit of Settlor’s family, enforceable solely by Settlor (or select few) as enforcer, with purpose of growth and development of the family business • “Dynasty-style” perpetual private trust • Corporate vehicle e.g. SPV for securitization
  • 15. (A) Cayman STAR Trust a. Dynasty/STAR Trust Structure Protector Corporate Trustee (CI Trust Co) (optional) STAR Trust Settlor Enforcer (Perpetual) Underlying Company (CI Co) Family Business established by Settlor
  • 16. (A) Cayman STAR Trust b. Securitisation • SPV set up with shares held by STAR Trust • Originator sells portfolio of receivables to SPV • SPV funds payment for receivables by the issue of notes secured on the receivables • SPV funds payment on notes from cash flow from the receivables
  • 17. (A) Cayman STAR Trust b. Securitisation STAR Trust holds shares of SPV Investors ←$ ←$ represented Originator Cayman Islands SPV →Receivables →Bonds by Bond Trustee AA rated assets generate Assets receivables
  • 18. (A) Cayman STAR Trust c. Financial services provider Corporate Trustee Protector (CI Trust Co) STAR Trust investment Investment adviser agreement CI Co Limited Partner Adviser asset management Asset Management clients agreement Co
  • 19. (A) Cayman STAR Trust d. National Recovery Fund Trustees (x 10) 9 individuals plus one CI Corporate Trustee STAR Trust Enforcers (Mixture of charitable and eminent CI professionals non-charitable purposes) U.S. Foundation Canadian Charity (Illinois not-for-profit Cayman Operating (to be established for tax corporation – exempt for exempt fund-raising in Co. fund-raising in the US) Canada)
  • 20. Cayman Islands
  • 21. Bermuda
  • 22. Bermuda
  • 23. Map of Bermuda
  • 24. (B) Bermuda • British Dependent Territory with internal self government • Economic and political stability • Established reputation • Tax neutrality • No foreign exchange control • Well supported by professionals and service providers • Significant in Asia as jurisdiction for public companies, funds, structured finance
  • 25. (B) Bermuda Purpose Trust • Sources of law • Background • How it works • Purpose trust in action – personal and corporate uses
  • 26. (B) Bermuda Purpose Trust Sources of Bermuda trust law Statute supplemented by English common law Statutory sources: • Trusts (Special Provisions) Act 1989 • Trustee Act 1975, as amended by the Trustee Amendment Act 1999 • Trusts (Regulation of Trust Business) Act 2001 • Perpetuities and Accumulations Act, 1989 • Pension Trust Funds Act 1966 • other Acts
  • 27. (B) Bermuda Purpose Trust Background • Bermuda statute - Trusts (Special Provisions) Act 1989 • “Charity” and “charitable” under English law – strict interpretation, mostly from cases involving the Inland Revenue • “Charity” under Bermuda law – Charities Act 1978; Companies Act 1981 – wider than under English law
  • 28. (B) Bermuda Purpose Trust How it works Trustee Term usually 100 years PURPOSE TRUST Enforcer appointed for purposes which are in the trust deed defined in the trust deed Persons having right of enforcement Trust Fund
  • 29. (B) Bermuda Purpose Trust How it works Term 100 years, or longer if there is no gift over in default of the purposes Purpose any purpose that is specific, reasonable, possible and not immoral under law, contrary to public policy or unlawful Creation in writing usually by declaration Trustee no special qualifications usually at least one of the trustees would be a Bermuda company or individual
  • 30. (B) Bermuda Purpose Trust Enforcement right of the following persons in succession: • the settlor, unless the deed prohibits • persons appointed in the deed (“enforcer”) • the trustees • any person with a sufficient interest; • if there is no person able or willing, then the Attorney General is given the power to enforce
  • 31. (B) Bermuda Purpose Trust Uses Semi-charitable purposes PURPOSE TRUST As personal vehicles As corporate vehicles
  • 32. (B) Bermuda Purpose Trust Semi-charitable purposes Trusts which are not strictly charitable within common law definition of “charitable” • to further a charitable objective or semi-charitable objective • to further charitable objective in non-charitable manner
  • 33. (B) Bermuda Purpose Trust a. Private trust company structure Licensed Trust Company creates by declaration and acts as trustee of Enforcer Purpose Trust incorporates and holds shares in Private Trust Company Board of Directors acts as trustee of Family Family Trust A Trust B
  • 34. (B) Bermuda Purpose Trust b. Controlling shareholders of Listco Settlor See Settlor Wong Weng Chart a Wong Yew Public Shareholders Family Family Beneficiaries Beneficiaries Family of Trust A Trust B Family of Wong Weng Wong Yew Holding Company (“Listco”) Subsid S1 Subsid S2 Subsid S3 Subsid S4 Assets/Business Assets/Business Assets/Business Assets/Business
  • 35. (B) Bermuda Purpose Trust c. As corporate vehicle Licensed Trust Company creates by declaration and acts as trustee of Enforcer Purpose Trust incorporates and holds shares in Private trust company Board of Directors creates by declaration and acts as trustee of Purpose Trust holds Commercial trust assets
  • 36. (B) Bermuda Purpose Trust d. Employee share incentive scheme Appleby Trust Lim ited (licensed) creates by declaration and acts as trustee of Pinetree Purpose Trust Enforcer incorporates and holds shares in Pinetree M anagem ent Pvt Trustee Lim ited Pinetree creates by declaration and acts as trustee of Board of Directors (Forest nominees) Forest Em ployee Trust holds Holdco Holding com pany Board of Directors owns (Pinetree nom inees) Em ployees’ contributions; shares in Forest
  • 37. (B) Bermuda Purpose Trust d. Employee share incentive scheme Benefits : • Assets of Employee Trust separate from assets of Company • Administration and control through private trust company acting as trustee of employee trust • Also useful as a global pension trust for internationally mobile employees, instead of separate plans for each group company
  • 38. (B) Bermuda Purpose Trust e. Securitisation Licensed Trust Company creates by declaration and acts as trustee of Purpose Trust Enforcer Originator incorporates and holds shares in Special Purpose Vehicle Board of Directors Issue Notes Sale of assets Transactions and contracts investors Payment into which the SPV enters Payment for Notes
  • 39. (B) Bermuda Purpose Trust e. Securitisation Benefits : • inexpensive means of raising funds • access to broader investor base • reduction in interest rate risks • off-balance sheet financing
  • 40. (B) Bermuda Purpose Trust f. As escrow agent in sale of a company Licensed Trust Company acts as trustee of Purpose Trust Committee of Protectorate Trust assets = purchase Beneficiaries = consideration Sellco Purchaser Shareholders S&P Agreement Subject company Sellco
  • 41. (B) Bermuda Purpose Trust f. As escrow agent in sale of a company • Committee of Protectorate, appointed by Settlors,to guide trustee on investment of a substantial amount of escrow monies. • Right of Settlors to appoint successors in event of change of any member of Committee of Protectorate. • In event of future insolvency of Sellco, reduce risk of escrow monies still forming assets of Sellco and becoming subject to creditors’ claims. • At the time of establishing the trust, it must be clearly determined that no event of insolvency and not for purpose of avoidance.
  • 42. Bermuda
  • 43. Bermuda
  • 44. Bermuda
  • 45. (C) Further Resources Appleby Briefs and Guides • Virgin Islands Special Trusts Act 2003 • The Private Trust Company • Trusts in Bermuda Securitization and Structured Finance Transactions • The Companies Amendment Act 2003 • The Investment Business Act 2003 • Securities Investment Business in the Cayman Islands • Segregated Portfolio Company Registration • The Segregated Accounts Companies Amendment Act 2002 – Commencement Day Notice
  • 46. (C) Further Resources To obtain Briefs and Guides, please contact us at : Appleby Spurling Hunter 5511 The Center 99 Queen’s Road Central Hong Kong Tel: (852) 2523 8123 Fax: (852) 2524 5548 hkinfo@applebyglobal.com www.applebyglobal.com
  • 47. Bermuda Hong Kong Office British Virgin Islands 5511 The Center Cayman Islands 99 Queen’s Road Central Hong Kong Hong Kong London