Every so often there are historic moments for trust lawyers. One such moment was when Lord Walker handed down the decision of the Privy Council in Schmidt v Rosewood1 and another was that on which the Cayman Islands’ ‘STAR trusts’ law2 came into force. 1 March 2004, the day on which both the Virgin Islands Special Trusts Act, 2003 and the BVI’s Trustee (Amendment) Act, 2003 (the ‘Amendment Act’) came into effect, was another of these momentous occasions.

Both the Virgin Islands Special Trusts Act and the Amendment Act are highly innovative and well thought out statutes dealing with a number of important areas of trust law in which reform was long overdue and, in the intervening two year period, considerable use has been made of the new statutory provisions.

Conflict of laws, purpose trusts and trustees’ dealings with third parties are just three of the areas which the Amendment Act covers.

In the words of Professor Jonathan Harris of Birmingham University ‘The [Amendment Act] contains arguably the most sophisticated set of choice of law rules dealing with both ‘rocket’ and ‘rocket-launching’ aspects of the trust to be found in any offshore jurisdiction… . Overall, the BVI rules are a highly sophisticated attempt to regulate both rocket-launching and rocket aspects of the trust. They strike a balance between respect for standard conflict of laws principles wherever possible, and the demands of a pragmatic set of rules which embrace settlor autonomy and insulate BVI trusts from attack by foreign laws. The combination of such rules with wide bases of jurisdiction for the BVI courts should make the conflict of laws rules applicable to trusts in the BVI an attractive package.’3

In order to make it easier for trustees to deal with third parties, the BVI has also adopted many of the recommendations of the English Trust Law Committee4. These reforms5 make the BVI the jurisdiction of choice in which to set up trusts for use in commercial transactions.

The Amendment Act also contains new legislation which provides the BVI with a clear and comprehensive regime for all new purpose trusts. This legislation secures the place of the BVI as one of the premier jurisdictions in which to set up purpose trusts - and these trusts are increasingly used for structured finance transactions.

More significantly still, the Virgin Islands Special Trusts Act created an alternative trust regime which enables special trusts, known as VISTA trusts, to be set up. The Act permits shares in BVI companies (and the underlying assets of the companies) to be retained for so long as the directors think fit and disengages the trustee-shareholder from management responsibility.6

Over the last two years, the VISTA legislation has generated an immense amount of positive international interest and a significant number VISTA trusts have already been set up.

Examples of some of the situations in VISTA has provided the ideal solution as follows:

  • Where a trustee’s involvement in an underlying company’s affairs is undesirable or inappropriate. It provides the perfect solution to the concerns which arose from the decision in Bartlett v Barclays Bank.7
  • Where the settlor wishes to retain control: many VISTA trusts have been structured so that the settlor has this control at the director (company) level.
  • Where the settlor intends the shares which were to be settled on trust and/or the underlying assets of a company to be retained
  • Where the underlying assets of a trust involve a degree of risk which is inappropriate for a trustee of a non–VISTA trust.
  • Where charitable or non-charitable purpose trusts are needed for securitisations and off-balance sheet transactions.

Typically shares in non-BVI companies and/or other assets are held by the BVI company the shares of which are held by the trustee of the VISTA trust. VISTA then prevents the trustee from being able to procure a disposal of underlying assets or from being able to engineer an intervention in the affairs of controlled subsidiaries.

Both VISTA and the Amendment Act were based on proposals which were made to the BVI government by the BVI Branch of STEP: the implementation of the relevant proposals demonstrates the close collaboration between government and the private sector in terms of working together to create flexible and innovative solutions which meet the legitimate needs of the BVI’s international client base.

STEP BVI is now working on further proposals for trust law reform, so watch this space!

Footnotes

1. Now contained in Part VIII of the Trust Law (2001 Revision).

2. [2003] UK PC 26.

3. Launching the Rocket – Capacity and the Creation of Inter Vivos Transnational Trusts in Glasson (ed.) International Trust Laws (Jordans, loose-leaf). The new BVI provisions are now contained in sections 82 and 83A of the Trustee Act.

4. In its Report Rights of Creditors against Trustees and Trust Funds http://www.kcl.ac.uk/depsta/law/tlc/reports.html.

5. The new provisions are to be found in Part X of the Trustee Act.

6. For further information on VISTA trusts see the author’s chapter in Thomas and Hudson – The Law of Trusts at paragraphs 40.25 to 40.65 (reproduced in International Trust Laws at paragraphs A6.135 to A6.180 and the Journal of International Trust and Corporate Planning Vol 11 No. 2 2004 at pages 63 to 82) and VISTA Trusts by Christopher McKenzie and John Glasson which is just about to be published in STEP’s Technical 7. [1980] Ch. 818.

7. [1980] Ch. 818.

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.