Member Article

Although trust has always been regarded as one of the best succession vehicles, it has never been attractive for the succession of shares in companies because of a rule of English trust law, the “prudent man of business rule”. It was established in the case of Bartlett v Barclays Bank Trust Co Ltd [1980] 1 Ch 515 that it is the duty of a trustee to conduct the business of the trust with the same care as an ordinary prudent man of business would extend towards his own affairs. The rule was designed to help preserve the value of trust investments and made the trust not ideal to hold assets which settlors intend trustees to retain. Accordingly, the rule and the duties of trustees have historically conflicted with the wishes of the settlor who prefers to preserve the underlying assets for the benefit of family members rather than to maximize profits by disposing of the assets.

Solution

The Virgin Islands Special Trusts Act (the “Act”) enables special BVI trusts (“VISTA trusts”) to be created whereby a shareholder can transfer ownership of their BVI company into a trust while at the same time retaining effective control and management of the company. The Act allows directors to run the companies largely free from intervention by the trustees as the trust instrument can be structured so as to disengage the trustee from management responsibility. VISTA permits the entire removal of the trustee’s monitoring and intervention obligations, which may be retained only if the settlor wishes so. It also permits the settlor to provide for the trustee’s intervention to resolve specific problems and allows trust instruments to lay down rules for the appointment and removal of directors. The right to apply to the court is given both to beneficiaries and directors in the event that the trustees fail to comply with the requirements for non-intervention or the requirements for director appointment and removal. Noteworthy, the sale of shares is prohibited without directors’ approval. Accordingly, VISTA circumvents the rigid “prudent man of business rule” which made it mandatory for trustees to monitor and intervene in the affairs of the company as they deemed fit.

Uses of VISTA trust

The establishment of a VISTA trust is certainly ideal for a client where, for instance:

(i) the wishes to retain control;

(ii) the intends the shares which he wishes to settle on trust and/or the underlying assets of the company to be retained;

(iii) the trustees’ involvement in the underlying company’s affairs is undesirable or inappropriate;

(iv) the wishes to prevent the trustee from being able to procure a disposal of underlying assets especially in family held businesses where retention of the shares is more important than maximizing the value of the assets in the trust; or

(v) the wishes to prevent the trustee from being able or required to intervene in the affairs of the company and its subsidiaries.

Conclusion

In summary, VISTA facilitates the creation of a trust of shares in a BVI company and is ideally suited to clients that wish to retain effective control of their BVI companies while at the same time taking advantage of the benefits of holding and structuring their assets through the use of a BVI trust. Also, the Act further demonstrates that the BVI is ahead in the offshore world in creating and advancing innovative solutions to meet needs of their international clients.