CLAIMS BY CREDITORS AND ON DIVORCE

Transcription

1 CLAIMS BY CREDITORS AND ON DIVORCE Arlene Ross Principal Consultant Arnalois Consul>ng 1

2 ASSET PROTECTION The Statute of Elizabeth Section 172 (1) of the English Law of Property Act 1925 No requirement for bankruptcy/limitation period Prima facie case of intent if no consideration/undervalue Badges of fraud Transferor contemplating hazardous venture/risky business Subsequent creditors (Stileman v Ashdown (1742) 2Atk 477) 2

3 ASSET PROTECTION A man is not en.tled to go into a hazardous business and immediately before doing so se9le all his property voluntarily, the object being this If I succeed in business I make a fortune for myself. If I fail, I leave my creditors unpaid. They will bear the loss The object of the se9lor was to put his property out of the reach of his future creditors. He contemplated engaging in this new trade and wanted to preserve the property from future creditors per Lord Jessell in Re Bu&erworth (1872) LR14 Eq 106 3

4 ASSET PROTECTION Sections of the English Insolvency Act 1986 See Alastair Hudson s chapter on asset protection in International Trust Laws Legislation in Anguilla, The Bahamas, Bermuda, the Cayman Islands, the Cook Islands, Gibraltar, Nevis and (in the US) Alaska, Delaware, Missouri, Nevada, Rhode Island, South Dakota and Utah Features of asset protection legislation include: time limit within which claims must be made burden of proof on creditor prospective claims of future creditors barred 4

5 Barbados Interna.onal Trust Act Cap 245 SS Every disposi.on of property made with intent to defraud shall be voidable at the instance of a creditor thereby prejudiced, the burden of establishing an intent to defraud is upon the creditor seeking to set aside the disposi.on, no ac.on or proceeding can be commenced later than three (3) years a[er the date of the disposi.on.

6 ASSET PROTECTION Establishing a trust in another jurisdiction will in itself provide a disincentive for creditors to attack Protective/discretionary trusts protect assets against the improvidence of beneficiaries Increasing tendency of onshore courts to make orders against settlors within their jurisdiction based on their control Alvares Correa v Alvares Correa (726 NY 2d (1 st Dept) 2001) Federal Trade Commission v Anderson 2 ITELR 72 In Re South Orange Grove Owners Association v Orange Grove Partners 6

7 ASSET PROTECTION Especially with offshore asset protec.on trusts, the costs and uncertainty of dealing with foreign laws o[en result in creditors accep.ng low se9lements. Even trusts which would not stand sustained a9ack in a sophis.cated forum work quite well when the creditor is unwilling or unable to stay the course. They might not survive a full court challenge but they can o[en be effec.ve in giving a se9lor powerful (o[en unbeatable) leverage in nego.a.ons Some advocates and marketers of these trusts are o[en quite open in sta.ng that obtaining nego.a.ng leverage is their real purpose. One reason that there are rela.vely few reported decisions on offshore trusts is that most of these cases se9le; proof that they are effec.ve. This exhibits a variant of the well-established legal principle possession is nine-tenths of the law - per David Faust in Trusts in Prime Jurisdic/ons (ed Kaplan) 7

8 ASSET PROTECTION Criminal sanctions in the English Insolvency Act 1986 and other criminal offences Vital to do enhanced due diligence 8

9 ASSET PROTECTION TIPS Do not give the settlor/nominee powers of substance Do not give the settlor the power to change the trustees: an onshore court could conceivably order the settlor to appoint creditor friendly trustees Appoint an institutional trustee without ties to the jurisdiction in which creditors claims likely to be brought Do not use a jurisdiction in which a judgment is capable of being registered or enforced via reciprocal enforcement of judgments legislation Create the trust when settlor solvent/no grounds on which claims can be made 9

10 ASSET PROTECTION TIPS/CONTINUED Asset protection should not be the sole/main intention Do not locate trust property in the jurisdiction in which claims made/may be best if trust assets liquid Consider use of in terrorem provisions Consider insurance Consider using limited liability vehicles 10

11 DIVORCE English Matrimonial Causes Act 1973 Toby Graham, Farrer & Co White v White [2000] FLR 981 yardstick is equality Charman v Charman [2007] EWCA Civ

12 DIVORCE- ENGLISH COURTS POWERS Power to vary foreign trusts Power to set aside dispositions made with the intention of defeating spouses claims Treating equitable interests as property Treating the trust as a financial resource (most 12 common remedy)

13 FIREWALL LEGISLATION Initially aimed at forced heirship claw back claims E.g. sections of the International Trust Act CAP 245 any question arising with regard to a trust that is governed by the law of Barbados or any disposition of property upon trust thereof is to be determined according to the law of Barbados without reference to the law of any of any other jurisdiction with which the trust or disposition may be connected 13

14 where a trust is validly created under the law of Barbados the court shall not vary it or set it aside pursuant to the law of another jurisdiction in respect of the personal and proprietary effects of marriage, succession rights testate and intestate, especially the legal right of surviving spouses and the shares of relatives, (or) the protection of creditors in matters of bankruptcy, unless there are corresponding laws in Barbados.

15 TREATING THE TRUST AS A FINANCIAL RESOURCE Order made against the spouse Must be able to value the resource Charman v Charman and Re Rabaiotti 2000 JLR 173 Look at the reality of the situation: applying the balance of probabilities is it likely (given past distributions and the nature and extent of the other spouses control and influence) that the trustee would make a distribution if requested to do so Browne v Browne Charman v Charman Kan Lai Kwan v Poon Lok To Otto [2014] HKEC

16 VARYING FOREIGN TRUSTS Charalambous v Charalambous [2004] EWCA Civ 1030 Article 15 of the Hague Trusts Convention 16

17 SUBMITTING TO THE ONSHORE COURT S JURISDICTION Apply to the home court for directions A Trust [2016(2)] CILR 416 Re H Trust [2006] JLR

18 DIVORCE - TIPS Do not create the trust when the marriage is breaking down Include a wide class of beneficiaries and long perpetuity period Consider not including those at risk of divorce within the class of beneficiaries and instead include a power to add Do not give those concerned any fixed interests or any de jure or de facto control Do not make distributions to those likely to divorce/consider refusing the occasional distribution request Word letters of wishes carefully and do not provide those at risk with them Appoint independent professional trustees outside the jurisdiction 18

19 DIVORCE - TIPS/CONTINUED Consider making loans rather than distributions Consider exercising powers of removal/exclusion/ appointment to remove beneficiaries: Re the New Heurto Trust (2015) 18 1TELR447 Consider nuptial agreements (Radmacher v Grantino [2010] UK SC 42) 19

20 OTHER FORMS OF ATTACK BY CREDITORS AND SP0USES Resulting trust (Prest v Petrodel [2013] UK SC 34) Orders in relation to settlors /beneficiaries powers A power of revocation was considered quasi - property in the Cayman case of TMSF v Merrill Lynch [2011] UKPC 17 (but cf Y v R (2018)) Sham trusts (JSC Bank v Pugachev [2017] EWHC 2426) 20

21 Arlene Ross Principal Consultant Admitted: Anguilla, Barbados, St Kitts & Nevis, Trinidad & Tobago Arnalois Consulting Tel: (office) (mobile) 21