09 November 2012

Guernsey foundations given a closer look


Nerine Group of Fiduciaries and law firm Mourant Ozannes have jointly hosted a seminar on the new Guernsey foundations law for a select group of leading private client lawyers and barristers in London. 

Chaired by Nerine Fiduciaries chairman Keith Corbin, the event, which was held last week, included briefings from St John Robilliard and Giles Corbin, Mourant Ozannes' joint heads of the firm's International Trusts & Private Client practice in Guernsey and Jersey.

Nick Jacob, Lawrence Graham partner and a key member of the STEP executive committee, joined the speakers for a lively panel discussion concerning the attractiveness of foundations for the Asian market and how HMRC might treat foundations.

Advocate Robilliard explained that the draft Guernsey foundations law was approved by the Island's government in July 2012 and is pending final approval from the Privy Council. He anticipated that the law would come into force in early 2013.

"Guernsey's motivation for bringing in foundations is similar to Jersey's. Clients have often struggled with the fact that a trust is an expression of a relationship based on property law rather than being a separate legal entity. Foundations address this challenge," said Advocate Robilliard.

"The founder of a foundation under Guernsey law will have no right, in his capacity as founder, to foundation property. There will be no concerns over foundation assets reverting to the founder as you might find with a trust. Guernsey's registration process involves a combination of public and private registration: the public register will be sufficient to demonstrate that a particular foundation exists while a private register is needed to allow regulatory and anti-money laundering oversight."

He pointed out that, unlike a Jersey foundation, the founder must make an initial endowment and there is no requirement for the council of members to contain a Guernsey resident and licensed fiduciary, but in that situation a Guernsey licensed fiduciary would have to act as resident agent.

"The resident agent will have the right, but not the obligation, to obtain information in respect of the foundation from the council. Beneficiaries under Guernsey foundations will either be enfranchised beneficiaries, with a right to information, or disenfranchised beneficiaries who will have no right whatsoever to information.

"While Guernsey has implemented reservation of powers to the founder, similar to those in the trust law and in Jersey's equivalent foundations law, there is a distinction. Certain powers can only be reserved during the founder's lifetime and if the founder is a corporate entity such powers can only be reserved for 50 years.

"Given difficult experiences that have arisen in other jurisdictions, foundations in Jersey and Guernsey may well be regarded by clients and their advisors as familiar civil law-accepted vehicles established in well-regulated jurisdictions that are able to address the challenges of providing services in an ever more compliant global environment whilst still preserving the privacy that sophisticated private clients desire."

Giles Corbin, who set out the features of the Jersey foundation offering to the audience, was part of the working group which developed and drafted Jersey's Foundations Law.

"There are some 77 civil law countries in the world, including three out of the four BRIC countries with vast potential workflows. Because, for instance, the trust concept is regarded as 'repugnant' to Russian law a foundation, as a civil law construct, represents a much more attractive option where Russian law issues are likely to be in play," said Mr Corbin.

"Foundations are also attractive to Middle East clients. Given the vast wealth in the region and the suitability of foundations for the Middle East market, it is not surprising that a number of the foundations established for Middle Eastern clients have been of significant size - in excess of US $100m."

He explained that foundations removed some of the uncertainties associated with trusts; they are less susceptible to sham attack, gave confidence to the founder as the assets were owned by the foundation itself a distinct legal entity and they gave a multiplicity of control retention mechanisms over key decisions for the founder while offering a higher level of confidentiality than trusts.

Mr Corbin went on to give examples of where foundations had been used in practice including for a Swiss resident who wanted to establish a philanthropic infinite duration vehicle to preserve tracts of rainforest, a Luxembourg fund promoter who wanted an orphan manager and a Russian family who wanted a vehicle to hold property in Moscow, Egypt and London.

"It's an important addition to Jersey - and now Guernsey's - range of tools in the wealth management space," he concluded.

Keith Corbin added: "It is clear there is a wealth of expertise in both Channel Islands that will make each island's foundation law compelling to many in civil law jurisdictions. This level of expertise, and the islands' willingness to evolve quickly and with skill to cater to the demands of the private client sector, stand the Channel Islands in very good stead for future work."

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