03 July 2012

Guiding you through VISTA trusts


The Virgin Islands Special Trusts Act 2003 (the ‘Act’)

The use of the trust to cater for the succession of shares in companies has historically been impeded by the ‘prudent man of business rule’1 designed to help preserve the value of trust investments. This rule has traditionally made the trust an unattractive vehicle to hold assets which the Settlor intends trustees to retain. The rule also requires trustees to monitor and intervene in the affairs of underlying companies. The Act enables special new trusts (VISTA trusts) which circumvent these difficulties. This guide sets out the key features of VISTA trusts and does not provide definitive advice on the law. You are recommended to seek legal advice on your specific circumstances.

What is a VISTA trust?

The legislation enables a shareholder/settlor to form a trust to hold his company shares and remove the trustee from management responsibility. It permits the company and its business to be retained for as long as the directors think fit. VISTA has proved versatile in addressing the needs and commercial requirements of the modern BVI trust market2.

Key features of VISTA Trusts

  • The company shares in the VISTA Trust (‘Designated Shares’) must be in a BVI company. In other words the underlying company holding the trust assets needs to be a BVI company.
  • Designated shares are held on ‘trust to retain’. The trustee’s duty to retain the shares has precedence over any duty to preserve or enhance their value. The trustee is therefore not liable for the consequences of holding the shares.
  • Subject to contrary provisions in the trust deed, the trustee may not exercise its voting or other powers so as to interfere in the management or conduct of any business of the company. The management or conduct of the business is left to the directors.
  • The trust deed may include ‘Office of Director Rules’ specifying how the trustee must exercise its voting powers in relation to appointment, removal and remuneration of directors. Except in compliance with these rules, the trustee must generally not take steps to procure the appointment or removal of the company’s directors.
  • Intervention may be permitted by the trust deed in specified circumstances, ie when required to so by an ‘intervention call’ by a beneficiary, object of a discretionary power of appointment, parent/guardian or either, the Attorney General3, enforcer or other specified persons.
  • Beneficiaries, directors and others may apply to Court for enforcement of the terms of the Act and, on the application of a specified empowered person, the Court may authorised the trustee to sell designated shares where retaining them is no longer compatible with the Settlor’s wishes.
  • The trustee may retain the shares indefinitely. The trustee is permitted to dispose of designated shares but only with the consent of the directors of the company/ those persons specified (unless the trust deed provides otherwise).
  • The rule in Saunders v Vautier which may lead to the beneficiaries of a trust being able to wind it up, can be specifically disapplied for up to 20 years.

When are VISTA trusts typically used?

  • When the Settlor wishes to retain control.
  • When the Settlor intends the settled shares to be retained.
  • In family-held businesses, where retention of the shares is more important than maximizing the value of the assets in the trust.
  • When trustee involvement in an underlying company’s affairs is undesirable or inappropriate.
  • Where charitable or non-charitable purpose trusts are needed for securitisations and off-balance sheet transactions or to hold shares in private trust companies.
  • Where the underlying assets of the trust are to comprise of speculative investments or risky investments which might otherwise be regarded as inappropriate for the trustees for a non-VISTA trust.

Specific examples of situations when VISTA trusts could be used

Family Trading Companies
These are traditionally not placed in an offshore trust, as most professional trustees would not accept the liability risks associated with overseeing a business of which they had no knowledge and most owners would not accept the level of interference trustees were obliged to undertake. VISTA trusts circumvent these concerns and shares in family trading companies are now routinely placed in VISTA trusts.

The single asset holding company
These are also traditionally not held via trusts as the costs were not justified and owners were loathe to confer on the trustees wide discretionary powers to manage the often modest assets of the company. Certain BVI trust companies now offer a short form VISTA trust deed, to enable the owners of BVI company shares to avoid a public probate in the BVI in the event of their deaths. It is thought that the majority of BVI companies hold a single asset and a VISTA trust enables the costs of administration to be maintained at a modest level.

Private trust companies ('PTC')
Following the Financial Services (Exemptions) Regulations 2007, a company can now be incorporated in the BVI with the sole purpose of acting as a trustee or protector of a trust, without the need to obtain a trust licence. VISTA trusts are now used to hold the shares of family PTCs4, with the trust deed typically prohibiting the trustee from selling or otherwise disposing of the shares in the company. Previously, shareholder agreements or further trusts were required to hold the shares of the PTC in order to circumvent the problem of whoever owned the shares of the company indirectly having control and access to the entire family wealth.
Typically the Office of Director Rules provide that a named family member would have discretion during his lifetime to determine the directors of the PTC and then on his death automatic rules would apply naming certain family members and the circumstances in which they should be removed. Or, an Office of Director Rule committee is established (comprising family members) with the power to appoint and remove directors of the PTC.

Why Withers?

Withers is the only large international ‘onshore’ law from with an office based ‘offshore’ and permanent lawyers based in the British Virgin Islands. In addition, in the private client field, Withers has over 120 tax and trust specialists worldwide, making it one of the largest and most
comprehensive private client practices in the world. This enables us to respond to client needs by forming dedicated teams which serve particular types of private client – hedge fund and investment managers, entrepreneurs, families, family offices, investment and private banks, trust companies, landed estates, and the globally wealthy.
Withers is also one of the very few firms that has a specialist practice in litigation relating to trusts and probate. It is also well-known for its litigation expertise in fraud (particularly tracing assets through trusts), employment, insolvency, professional negligence and art.

Footnotes

[1] This rule dictates that a trustee is under a duty of care to manage the trust assets as a prudent man of business would do if he was under a moral obligation to provide for others.
[2] This is only applicable to trusts established after 1 March 2004. The trust instrument must specifically invoke the Act and the Act is confined to shares in BVI companies. The Trustee must be a company which holds a licence to undertake trust business under the Banks and Trust Companies Act 1990.
[3] Where any of the purposes of the trust are exclusively charitable
[4] It is worth noting that whilst a VISTA trust can hold the shares in a PTC, a PTC cannot act as trustee of a VISTA trust. Only a BVI licensed trust
company can do that and the Act is confined to shares in BVI companies. The Trustee must be a company which holds a licence to undertake trust business under the Banks and Trust Companies Act 1990

Authors

Category: Article

Client types: Private companies