Introduction

Guernsey is firmly established as a prime financial service centre setting the benchmark for industry regulation and supported by a highly regarded legal system. Its expertise in banking, trust administration, insurance services, fund services, and legal and accounting services has attracted substantial private wealth to the island. The island has gained an enviable reputation for innovation in the provision of financial services to its international client base, a well-known example being the development of the protected cell company structure in which its lead has been followed by many other jurisdictions.

The island has, over the years, responded to client needs, preferences, and sophistication in the provision of financial services generally. In order to address these changing needs and also to respond to a widening international client base, over the last two years the island has introduced new legislation to enable it to provide innovative solutions of interest to the private wealth sector.

This chapter highlights several of these recent innovations in Guernsey law insofar as they will appeal to those working with private clients. The authors have highlighted the main introductions of legislation and the mechanisms for those new laws in order to give private client solicitors in the UK a better understanding of how they could work for their clients.

Image rights

In December 2012, Guernsey introduced the world's first ever system of registered image rights. The decision to introduce this offering followed on from a strategic decision some years previously to upgrade the island's intellectual property ('IP') laws to meet international standards and to pursue IP as a new strand to the island's economic offering.

From 2004 to 2009, the island introduced cutting-edge legislation on key IP rights, such as copyright, design, trademarks, patents, and database rights. Having done so, Guernsey then sought to identify areas where new IP offerings were required. From an early stage, the island identified image rights as a key area for reform.

Guernsey recognised that there was significant commercial activity involving the use of images of sportsmen and women and other celebrities for endorsements and promotional work. A celebrity's personal brand could be hugely valuable – estimates of David Beckham's image right earnings, for example, are in the millions. However, despite this significant commercial activity, there was no specific legal provision to protect a celebrity's right to control the exploitation of their own image. At best, celebrities could seek limited protection through trademarking goods or services which they produced, or could stop people passing off goods as having come from the celebrity through reliance on advertising codes.

Neither of these options was designed to protect the celebrity's image generally from commercial exploitation, and it was that gap which Guernsey sought to fill. In practical terms, applications are made at Guernsey's IP Office. There are two key elements to the registration – the first is registration of the personality; and the second is registration of the various images which the personality wants to protect. There is a fee payable which varies depending on the type of person registering, and the number of images being registered. The registrations can be renewed indefinitely, rather like trademarks. Registration creates a right of property. The legislation allows natural persons to register their personalities, but also permits registration of corporate persons (e.g. Virgin Airlines), joint personalities (e.g. Ant and Dec), groups (e.g. Manchester United FC), and fictional characters (e.g. James Bond, Harry Potter, or Winnie the Pooh). Recognising that there has been exponential growth in the 20th Century of the cult of celebrity, the law allows registration of natural or legal personalities who are alive now or who died in the last 100 years, thereby also allowing the estates of key celebrities to take advantage of the law.

The scope for indefinite renewal of the registration should be of interest to wealth managers seeking to obtain maximum protection for any client who exploits their image. This is because the most common protection for images historically has been copyright of specific images, which is of limited duration. Thus, the iconic images of Marilyn Monroe taken by Cecil Beaton will run out of copyright in the next decade. If the estates of Monroe and Beaton reached agreement, however, registration of an image right would permit protection of those images indefinitely.

Guernsey foundations

Following the introduction of foundations in other finance centres, Guernsey was in the advantageous position of being able to learn from the experience of other jurisdictions in how best to introduce what is essentially a civil law concept into a common law jurisdiction. Many elements common to civil law foundations are found in the Foundations (Guernsey) Law 2012 that came into force on 8 January 2013.The inclusion of these provisions does not, however, detract from the flexibility of the law which allows Guernsey foundations to either closely resemble civil law foundations or, alternatively, where it is not required for the foundation to be recognised as such in a civil law jurisdiction, allows freer drafting in accordance with the intentions and wishes of the founder.

As with foundations in other jurisdictions, a Guernsey foundation has some characteristics that are similar to those of a company, as it has a separate legal personality and a management board known as a 'council'. On the other hand, it has no members or shares nor any concept of share capital. Some aspects of foundations can be compared with trusts, as assets are held for the benefit of others or for a specific purpose, although trusts have no separate legal personality.

With foundations, there is no separation of legal and beneficial title of property, therefore making a foundation attractive in those jurisdictions where the concept of the separation of legal and beneficial ownership is not well understood.

Foundations are ideally suited for private wealth management, succession planning structures, and charitable giving. They are more flexible than a company structure in that the law allows a substantial degree of bespoke adaptation. Guernsey foundations are managed by a council comprising one or more councillors. The core documents by which the foundation is established

are its charter and the rules, which together constitute the constitution. The founder of a Guernsey foundation determines the purpose of the foundation, crafts the foundation's constitution, and endows it with its initial capital. The founder appoints the initial councillors and any guardian and seeks to have the foundation registered. Each Guernsey foundation must have a purpose – the purpose is central to the establishment of a foundation in that the councillors must execute and administer the foundation only in the advancement of the purpose.

The charter contains the name and purpose of the foundation, description of its initial capital endowment (there is no minimum), and the rules set out the operative provisions of the foundation, such as the functions of the councillors, the procedures for the appointment, retirement, and remuneration of councillors and any guardian, and the beneficiary provisions.

These concepts are common to foundations in most jurisdictions. However, Guernsey foundations have certain innovative aspects, which set them apart from those that can be provided by competitor jurisdictions. These innovations include the following:

1. Although the foundation is registered on a public register, neither the charter nor the rules appear on the register. The only information which is publicly available is the name and registered number of the foundation, the names and addresses of the councillors appointed to act, the name and address of the guardian (if there is one), and the details of the registered office. No other information is available to the public.

2. It is not required that the councillors of the foundation be Guernsey licensed fiduciaries. If no councillor (or the guardian) is a Guernsey licensed fiduciary, then the foundation will require a Guernsey resident agent to hold the foundation's records within the jurisdiction.

3. It is not necessary for a Guernsey foundation to have a guardian unless the foundation is established for a purpose without identifiable beneficiaries or if the foundation has disenfranchised beneficiaries. The guardian's function is to enforce the purposes of the foundation on behalf of the beneficiaries or, where there are no beneficiaries, in substitution for them.

4. Beneficiaries of a Guernsey foundation may be classified as either 'enfranchised' or as 'disenfranchised' beneficiaries. Enfranchised beneficiaries have rights to information regarding their interest under the foundation, including information as to the state and amount of the assets of the foundation. They also have rights to apply to court for relief in appropriate circumstances. Disenfranchised beneficiaries have no rights to information and have no automatic right to approach the court for relief.

5. In cases where there are young beneficiaries and the founder does not want those beneficiaries to know about the assets held for their benefit within the foundation before a certain age, the founder can achieve this by making them disenfranchised beneficiaries up to a certain age.

6. The Foundations Law, in Section 11, contains express restrictions as to reservation of powers by the founder. Where the founder wishes to reserve a certain power, such as the power of amendment or revocation of the constitution or of the purposes of the foundation, the law permits such reservation but only for the duration of the foundation life, if he is a natural person, or for 50 years from the date of establishment in the case of a legal person. Thereafter, these reserve powers will automatically lapse.

These provisions are akin to those which are commonly found in civil law jurisdictions and have been crafted in this way to facilitate the establishment of foundations in a way that would make them recognisable in a civil law jurisdiction.

7. However, it is possible to reserve wider powers (other than those contained in Section 11) to the founder or to a third party in the same way as could be done in the case of a trust. Consequently, notwithstanding Section 11, it is open to a founder, where the need exists, to reserve wider powers for longer periods with the resultant flexibility to craft a foundation in accordance with the needs and desires of the founder. 8. Guernsey foundations can be established to act as trustees and so are an interesting alternative to private trust companies established for private trust structures.

Aircraft registry: 2-Reg

Guernsey's Aircraft Registry, known as the '2-Reg', was established pursuant to the Aviation Registry (Guernsey) Law 2013 and launched on 9 December 2013. 2-Reg offers the opportunity to register in Guernsey aircraft not being used for commercial air transport wherever in the world they are based. All aircraft must be registered with a national aviation authority, but which authority is generally the choice of the aircraft owner. Each registry has its own requirements and rules that must be complied with, and it is therefore necessary for careful consideration to be given as to the best registry for a particular aircraft. There are significant advantages to registering an aircraft in Guernsey and the 2-Reg is particularly attractive for business jets, parked airliners (that is airliners owned by a leasing company but not currently on lease), and privately owned aircraft.

Upon registration, an aircraft is assigned a unique identification code. This code, sometimes referred to as the 'call sign', plays the same role that a number plate does on a car. Each aircraft registry issues identification codes beginning with a particular letter or number. An aircraft registered on the 2-Reg is issued with a neutral national registration mark beginning '2-', whereas an

aircraft registered in the United Kingdom will be issued with an identification code beginning with the letter 'G-'. In either case, the country code is followed by four letters, such as '2-PEQL'. In Guernsey, if an additional fee is paid, a personalised registration such as '2-HIGH' can be obtained. An aircraft does not have to be physically present in Guernsey to be entered onto the register. Aircraft based anywhere in the world can be registered in Guernsey as long as the legal and beneficial owner of the aircraft (or, in certain circumstances, a person who has chartered the aircraft) meets the eligibility requirements and the aircraft is not being used for commercial air transport. The eligibility criteria are such that almost all natural and legal persons, wherever in the world they may be, are eligible to register an aircraft on the 2-Reg provided, in certain circumstances, that they are represented by a Guernsey resident agent.

It is not uncommon for part of the purchase price of an aircraft to be financed with borrowed money. Typically, such loans are secured against the relevant aircraft asset and this will be possible in respect of aircraft assets (being aircraft and aircraft engines) registered on the 2-Reg. The Registry will maintain a secure register of such charges in accordance with the Aviation Registry (Guernsey) Law, 2013. The Registry will also permit the filing of priority notices, which is a notice that a person is intending to take security in respect of a particular aircraft asset. If the charge to which the priority notice relates is subsequently filed, the charge is deemed to have been registered on the date on which the priority notice was filed and the priority of the charge determined accordingly. This may be very useful to lenders, as a charge that is registered first has priority over subsequently registered charges.

LLPs

On 13 May 2014, the Limited Liability Partnerships (Guernsey) Law 2013 came into force allowing LLPs to be incorporated in Guernsey for the first time. Guernsey's LLP legislation is based upon the UK's Limited Liability Partnerships Act 2000, with certain key differences designed to capitalise upon the experience of LLPs gained in other jurisdictions. A Guernsey LLP is a body corporate, has unlimited capacity, and may do anything that a legal person can do. It has the ability to own assets and to sue and be sued in its own name. A Guernsey LLP must have two members but the UK concept of 'designated members', with particular compliance responsibilities, has not been duplicated; the members have complete flexibility to determine the ownership, operation, and management of their LLP.

Despite having separate legal personality, Guernsey LLPs are tax transparent for Guernsey tax purposes. As such, the LLP itself will not be subject to tax, but rather the members will be liable for their share of the profits and gains of the LLP.

Unlike in the UK, all Guernsey LLPs are required by law to have a written LLP agreement between the members and the LLP itself which governs the affairs of the LLP and the conduct of its business. This agreement is private and is not publicly-filed. Similarly, Guernsey LLPs are not required by law to prepare annual accounts nor to file such accounts with the Registry.

Consequently, the financial position of the LLP, the value of its assets, and the respective interests of its members can remain private. If accounts are required by the members, they are free to choose the applicable accounting standards. Guernsey LLPs provide a convenient structuring solution for investment managers wishing to maintain the utmost flexibility and confidentiality.

A Guernsey LLP affords limited liability to its members. A member will not be liable for any debt of the LLP or the debts of any other member. Unless otherwise provided by the LLP agreement, members have no default liability to contribute toward the capital of the LLP. Every member of a Guernsey LLP is an agent of the LLP, but not of the other members. As a result, there is no joint and several liability between members, but members may be personally liable for their own negligence if they have assumed a personal duty of care toward a third party and have acted in breach of that duty.

There is a broad range of potential uses for Guernsey LLPs. In some jurisdictions, the use of LLPs is restricted to the provision of legal, accountancy, or other knowledge-based professional services. The UK is less restrictive; LLPs may be formed for any lawful business with a view to profit. Guernsey LLPs are not targeted at a particular industry or business and may be formed for any lawful business with a view to profit or any other lawful activity, including for private wealth structuring. This latter limb was added to avoid the uncertainty present in UK law as to whether LLPs which could not perhaps be said to be carrying on a trade or business (for example acting as a holding entity) have been validly incorporated. The Guernsey LLP could also be used by charitable bodies, which are prevented from being structured as a UK LLP.

The members of an LLP may take a full and active part in management without losing their limited liability status. As a result, Guernsey LLPs are likely to prove popular for professional services firms (their traditional target market), joint ventures, investment clubs, investment funds, and other asset-holding vehicles where joint management is desired. Such flexibility also allows for the creation of more extensive minority rights than may otherwise be available in a corporate or limited partnership structure. With a thriving investment funds industry, it is likely that Guernsey LLPs will become well used as investment and asset management vehicles – a trend certainly seen within the UK. These new laws are attracting substantial interest and are useful additions to Guernsey's array of offerings to private clients seeking a bespoke solution for their wealth.

An original version of this article appeared in Solicitors Journal, July 2014.

For more information about Guernsey's finance industry please visit www.guernseyfinance.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.