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Asset Protection: How to protect your assets from greedy spouses and inconsiderate creditors

THE FORTESSS PLAN:


By I N LEGAIR, Barrister at Law

Recent divorce cases brought before the English courts have shown a marked intention by those courts to favour greedy spouses.

Accordingly we are advising all our clients (and other readers) who own offshore companies (whether as stand-alone entities or as part of a wider group) to place the ownership of their shares into a St Vincent and the Grenadines international trust and subscribe to our Fortress Plan.

Protection under the SVG International Business Companies Act 2007 (the “IBC Act”)

The major protection (from foreign attack) under this Act resides in section 197, which kicks in where a foreign court attempts to adjudicate on the issue of title to shares in a SVG IBC. The section provides that:

(1) For the purposes of determining matters relating to title and jurisdiction but not for the pur­poses of taxation, the situs of the ownership of shares, debt obligations or other securities of an inter­national business company is in the State.

(2) A Judge of the Court may exercise in Chambers any jurisdiction that is vested in the Court by this Act and in the exercise of that jurisdiction, the Judge may award such costs as he thinks fit.

The IBC Act clearly takes jurisdiction for the SVG courts in all matters dealing with title to shares of an IBC. As “title” is not defined in the Act, the term must refer to all forms of title, both legal and equitable. Hence no foreign court has jurisdiction to adjudicate upon the ownership or beneficial ownership of the shares of a SVG IBC.

The section seems to deem shares in an IBC to be immovable property with the law of its lex situs (i.e. SVG law) as the applicable law. Subject matter jurisdiction can only be decided by the SVG court, under SVG law as the mandatory law of the forum. The SVG court has reserved onto itself the right to try any issue where title to shares in a SVG IBC is involved.

So, while an international business company is fairly safe from attack where title is in issue, such an IBC may be subject to attack (in a foreign court) on other fronts. In particular, a foreign money judgment may well be enforceable in SVG. However, the introduction of a SVG trust into the structure makes it virtually impossible to attack on any front; especially where such attack is launched in a foreign court.

Protection under the SVG International Trust Act 1996 (the “ITA”)

Some of the extra protections available under the International ITA are as follows;

Non recognition of foreign judgments

Section 39 provides that “Notwithstanding the provisions of any treaty, convention, statute, rule of law or equity to the contrary no proceedings for the enforcement or recognition of a judgment or order obtained outside SVG will be entertained by the court if the judgment or order is based wholly or partly on the application or interpretation of law which is inconsistent with the ITA, or relates to a matter governed by the laws of SVG.

Consequently, any judgment obtained in a foreign court, will not be honoured by the SVG courts.
Benefits of Registration

Registration of SVG trusts is not mandatory. However it is prudent to register since registered trusts get special protection from attack, provided that the settlor was not insolvent at the time the trust was not created nor became insolvent by reason of its creation, and the trust was not created with intent to defeat his creditors. Registration also creates a rebuttable presumption that the trust, its income, and its beneficiaries are entitled to exemption from all SVG taxes and duties.

Favourable Limitation Period/ Security for Costs

Any claimant wishing to challenge or proceed against an SVG international trust or sue the trustees for breach of trust must do so within 2 years from the date of creation of the trust or from the date the cause of action arose. Before commencing his claim, the claimant must pay a cash sum of US$25,000 into court as security for costs.

Provided that the settlor was not insolvent at the time the trust was created, did not become insolvent by virtue of its creation, and did not establish the trust with intent to defraud creditors the trust will not be declared void or voidable in the event of the settlor’s bankruptcy or insolvency.

The Fortress Plan- Our Suggested Structure for use in Asset Protection

We have recently created an asset protection plan which we call the “Fortress Plan”. It involves the formation of an SVG international trust and 3 or 4 international business companies; one of which will subsequently be liquidated and dissolved.

The entities in the Fortress Plan are respectively:

  • The Settlor Company;
  • The Operational Company;
  • The Beneficiary Company;
  • The Protector Company; and
  • The International Trust.

We should be pleased to discuss the workings of the Fortress Plan with our most confidential high net worth clients. Details of the workings of this plan will not be made publicly available.

Please contact us for more information.