Bermuda Trust Overview

Speaker:

Tan Li-Lee, Senior AssociateAppleby Spurling Hunter, Hong Kong

5 May 2005

© Appleby Spurling Hunter

Offshore Jurisdictions Offshore Jurisdictions and Offshore Funds Conferenceand Offshore Funds Conference

IIntroduction to the Cayman STAR Trust and Bermuda Purpose Trust

Overview

(A) Cayman Islands STAR Trust

(B) Bermuda Purpose Trust

(C) Further Resources

Introduction

Singapore

Map of Grand Cayman

(A) Cayman STAR Trust(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


Originally Special Trusts (Alternative Regime) Law 1997Cayman Islands Trusts Law (2001 Revision)Part VIII, sections 95 – 109 Effective 23 October 1997

• Background• How it works• Opportunities for the STAR Trust


BackgroundBackground

General rule – trusts for non-charitable purposeswere void

3 conditions:• exclusively charitable purpose previously upheld by

court• must not exceed perpetuity period• person to execute and enforce 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


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)


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


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


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

(A) Cayman STAR Trust(A) Cayman STAR TrustOpportunities 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


a. Dynasty/STAR Trust Structure

STAR Trust(Perpetual)

Underlying Company(CI Co)

Family Businessestablished by Settlor

Settlor Enforcer

Protector(optional)

Corporate Trustee(CI Trust Co)


b. Securitisation

•• SPV set up with shares held by STAR TrustSPV set up with shares held by STAR Trust•• Originator sells portfolio of receivables to SPVOriginator sells portfolio of receivables to SPV•• SPV funds payment for receivables by the issue SPV funds payment for receivables by the issue

of notes secured on the receivablesof notes secured on the receivables•• SPV funds payment on notes from cash flow SPV funds payment on notes from cash flow

from the receivables from the receivables


b. Securitisation

STAR Trust

Investorsrepresented

by BondTrustee

Cayman Islands SPV

Assets

Originator

holds shares of SPV

← $ ← $

→Receivables →Bonds

AA rated

assets generatereceivables


c. Financial services provider

STAR Trust

Corporate Trustee(CI Trust Co)

CI Co

Asset ManagementCo

Limited Partner

clients

Investment Adviser

Protector

investment adviseragreement

assetmanagementagreement

(A) Cayman STAR Trust(A) Cayman STAR Trustd. National Recovery Fund

Trustees(x 10)

9 individuals plus one CICorporate Trustee

STAR Trust(Mixture of charitable andnon-charitable purposes)

Cayman Operating Co.

Enforcerseminent CI professionals

U.S. Foundation(Illinois not-for-profit

corporation – exempt forfund-raising in the US)

Canadian Charity(to be established for taxexempt fund-raising in

Canada)

Cayman Islands

Bermuda

Map of Bermuda

(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

(B) Bermuda Purpose Trust(B) Bermuda Purpose Trust

• Sources of law

• Background

• How it works

• Purpose trust in action – personal and corporate uses


Sources of Bermuda trust law

Statute supplemented by English common lawStatutory 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


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


How it works

Trustee

Enforcer appointed in the trust deed

Trust Fund

PURPOSE TRUST for purposes which are

defined in the trust deed

Persons having right of enforcement

Term usually 100 years


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 writingusually by declaration

Trustee no special qualificationsusually at least one of the trustees would be a Bermuda company or individual


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


Uses

As personal vehicles

PURPOSE TRUST

As corporate vehicles

Semi-charitable purposes


Semi-charitable purposes

Trusts which are not strictly charitable within common lawdefinition of “charitable”

• to further a charitable objective or semi-charitable objective• to further charitable objective in non-charitable manner


a. Private trust company structure

Licensed Trust Company

Purpose Trust

Private Trust Company

Family Trust A

acts as trustee of

Enforcer

Board of Directors

creates by declaration and acts as trustee of

Family Trust B

incorporates and holds shares in

(B) Bermuda Purpose Trust(B) Bermuda Purpose Trustb. Controlling shareholders of Listco

Assets/Business Assets/Business Assets/Business Assets/Business

Settlor Wong Weng

See Chart a

FamilyTrust A

Holding Company(“Listco”)

Beneficiaries Family of Wong Weng

Subsid S1 Subsid S2 Subsid S3 Subsid S4

Public Shareholders Family

Trust B

Settlor Wong Yew

Beneficiaries Family of Wong Yew


c. As corporate vehicle

Licensed Trust Company

Purpose Trust

Private trust company

Enforcer

Board of Directors




Purpose Trust

Commercial trust assetsholds


d. Employee share incentive scheme

Appleby Trust Limited (licensed)

Pinetree Purpose Trust

Pinetree M anagement Pvt Trustee Limited

Enforcer

Pinetree Board of Directors (Forest nominees)




Forest Employee Trust

Holding company

holds

Employees’ contributions; shares in Forest

owns

Holdco Board of Directors (Pinetree nominees)


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 internationallymobile employees, instead of separate plans for each group company


e. Securitisation Licensed Trust Company

Purpose Trust

Special Purpose Vehicle

Transactions and contracts into which the SPV enters

Enforcer

Board of Directors


Sale of assets

Payment

Originator

Issue Notes

investors

Payment for Notes



e. Securitisation

Benefits :

• inexpensive means of raising funds

• access to broader investor base

• reduction in interest rate risks

• off-balance sheet financing


f. As escrow agent in sale of a company

Committee of Protectorate

Licensed TrustCompany

Purpose Trust

Trust assets = purchase consideration

Purchaser

Beneficiaries = Sellco Shareholders

Subject companySellco

S&P Agreement

acts as trustee of


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 clearlydetermined that no event of insolvency and not for purpose of avoidance.

Bermuda

(C) Further Resources(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

(C) Further Resources(C) Further Resources

To obtain Briefs and Guides, please contact us at :

Appleby Spurling Hunter5511 The Center99 Queen’s Road CentralHong KongTel: (852) 2523 8123Fax: (852) 2524 5548

[email protected]

mailto:[email protected]

http://www.applebyglobal.com/

Hong Kong Office

5511 The Center

99 Queen’s Road Central

Hong Kong

Bermuda

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