"Lifting the veil of trust": factors undermining trust resilience

February, 2024 - Bermuda, Bermuda

"Lifting the veil of trust": factors undermining trust resilience

The world of wealth planning is like a vibrant tapestry, where offshore trusts are regularly woven into patterns aimed to offer prosperity and security for international families. The recent decision of the High Court of Singapore in the case of La Dolce Vita Fine Dining Company Limited v Zhang Lan and Others [2022] SGHC 278 provides a very helpful reminder that the creation of the structures is not the end of the story: the ongoing robustness of family trust structures is also contingent on the behaviour of those creating and administering those structures and, in this particular case, required the settlor to relinquish her legal and beneficial interests in the trust assets.

The central issue in the case was whether the moneys and other assets held within a family trust structure were in reality still beneficially owned by the settlor and under her control. The High Court of Singapore determined that the settlor in this case had in fact never intended to relinquish her beneficial interests in the assets and still exercised sufficient control over the moneys purportedly settled onto trust - a decision affirmed by the latest decision of the appellate division of the High Court in Zhang Lan v La Dolce Vita Fine Dining Group Holding Limited [2023] SGHC(A) 22.


Ms. Zhang Lan ("Mdm Zhang") is an affluent chain restaurant founder and celebrity entrepreneur in China, her country of origin. She is now a citizen of St Kitts and Nevis. On 10 August 2013, Mdm Zhang entered into a sale and purchase agreement ("SPA") with La Dolce Vita Fine Dining Company Limited ("LDV") when she sold majority shares of her company South Beauty Investment Company Limited ("SBIC"), which was the holding company of the well-known 'South Beauty' restaurant chain that she had founded and developed in China. The bulk of the purchase price was paid to her over three tranches between 16 December 2013 and 13 June 2014.

On 3 June 2014, around the time she received the purchase consideration in full, she settled an irrevocable Cook Islands family trust, the Success Elegant Trust, for the benefit of her son Mr. Wang Xiaofei and his children and remoter issue (the "Trust"). At the time, she was the sole director and sole shareholder of Success Elegant Trading Limited ("SETL"), a company incorporated in the British Virgin Islands ("BVI"). SETL owns two bank accounts in Singapore, the Deutsche Bank and Credit Suisse bank accounts (the "Bank Accounts"). On 4 June 2014, she transferred the share of SETL to the trustee of the Trust - Asia Trust Limited (the "Trustee").

After the purchase was completed, SBIC experienced a decline in its financial performance. Following internal investigation into the matter, LDV believed that Mdm Zhang had made fraudulent and negligent representations in connection with the SPA. LDV subsequently commenced arbitration in the China International Economic and Trade Arbitration Commission ("CIETAC") against Mdm Zhang on 5 March 2015 and obtained arbitral awards in favor of the LDV entities on 28 April 2019. The LDV entities then obtained judgements in Hong Kong recognizing the arbitral awards and following this, successfully registered the HK judgements in Singapore. LDV then applied for the appointment of receivers over the Bank Accounts.  Mdm Zhang and SETL appealed.

Court findings and judgment

The court dismissed Mdm Zhang and SETL's appeals and held that Mdm Zhang beneficially owned the assets in the Bank Accounts, despite the fact that the structure in place anticipated that they would be held by a company within the Trust for the benefit of her son and grandchildren. In reaching this conclusion, the court found the following:

  1. Mdm Zhang was motivated by a desire to protect her funds from potential claims by the LDV entities without giving up her ability to make use of those funds for her own benefit. This was evident from the fact that Mdm Zhang had transferred moneys from the Bank Accounts for her own purposes prior to the Hong Kong Freezing Orders and Singapore Freezing Orders. Further, Mdm Zhang was found to have transferred moneys out of the DB Account in haste after receiving notice of the HK Freezing Orders and to have done so in fear that the assets in Singapore may also be subject to similar freezing orders. The court also noted that all of the transfers in question had taken place without any involvement or prior direction from the trustee, leading to the conclusion that Mdm Zhang ultimately viewed the assets purportedly settled on the Trust as her own.
  2. SETL had not taken any action to contest the Singapore Freezing Orders. This lack of action was, in the court's view, evidence of an intention by SETL to simply leave it to Mdm Zhang to object to the Singapore Freezing Orders and led to a conclusion that SETL itself did not believe that it had absolute ownership over the moneys in the Bank Accounts.
  3. The evidence clearly showed that Mdm Zhang had personally benefited from certain payments out from the trust fund, and there was no convincing argument that transfers from the Bank Accounts to Mdm Zhang's personal bank accounts were in fact for the benefit of her son Mr. Wang (consistent with the purposes of the Trust). In most cases, there was no valid reason at all for the moneys to be transferred first to Mdm Zhang's account.
  4. In any event, Mdm Zhang's solicitor had confirmed in writing on Mdm Zhang's behalf that Mdm Zhang "maintains" the DB Account. The judge found that this was an admission that the account was Mdm Zhang's rather than an asset of SETL and under the control of the Trustee.
  5. The judge noted the importance of the fact that Mdm Zhang, as the settlor, had retained no residual powers under governing documentation of the Trust, except for the power to terminate the protector of the trust. In other words, once the declaration of trust was executed, the role of the settlor was to fall away and leave the Trustee to administer the Trust in the normal way.  However, Mdm Zhang did not do so and continued to control and make decisions in respect of the Bank Accounts.

Having determined that Mdm Zhang in fact beneficially owned the assets in the Bank Account despite the company and trust structure in place, the court went on to consider whether receivers could be appointed over the property (which Mdm Zhang had control of but no equitable interest in) and whether Mdm Zhang beneficially owned the moneys in the Bank Account (despite the transfer into the Trust).   The court held that Mdm Zhang held the view that she had free use of the moneys in the Bank Accounts and had consistently interfered with those funds. This led to the conclusion that there was a resulting trust and Mdm Zhang had retained a beneficial interest which supported and allowed for the appointment of a receiver over the Bank Accounts. 


The practical application and substantive evolution of trusts in Asia have not yet spanned more than two decades, which is very short time when compared with the well-established trust landscape in the UK, Europe and North America and in the offshore jurisdictions.

Consequently, some settlors from Asia tend to exhibit a degree of reservation and reluctance towards entrusting full discretion to the trustee and wish to retain a significant element of control over and access to trust assets. This tendency often gravitates towards retaining investment powers and powers of distribution and it is a tendency to discuss at the outset of the structuring exercise. If the settlors make such a request, a professional trust company or lawyer will generally advise the client to choose a jurisdiction for trust establishment where the law allows the power to be reserved (for example, in Jersey, Guernsey, Bermuda, BVI, and the Cayman Islands, which each allow for some reservation of powers in various forms) and to ensure that professional trust companies are appointed to the role of trustee in the jurisdiction of choice to ensure compliance with all local laws.

In this case, there is also much to be learned about the limits of using trusts for asset protection where a settlor who is not a beneficiary of the trust still wishes to retain control.  In order to avoid allegations of a "sham" structure, or circumstances in which assets within a trust structure can be accessed by creditors (as in this case), settlors must be educated as to the boundaries to be imposed when trusts are established, and the extent to which settlors can be authorised to interact with trust assets following establishment, in order to ensure the maintenance of a successful and robust family asset protection structure.

Rachel Yao, ‘Lifting the veil’, STEP Journal (Vol31 Iss5), pp.51-54