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5 February 2013
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10 June 2013
As trusts have developed to become a popular vehicle for a wide variety of uses, both solely and in conjunction with companies, an increasing number of financial institutions have extended their services to include the formation and administration of offshore trusts and companies.
However, not every institution may wish - or indeed be able - to set up and staff its own offshore office to provide this specialised service.
In such circumstances it may consider forming a managed trust company. For example, a firm of solicitors may have a sufficient volume of clients requiring offshore structures to justify the formation of a managed trust company which is owned by and trades in the name of the firm.
In jurisdictions such as Guernsey, Jersey, the Isle of Man and parts of the Caribbean, such an institution or firm can find a local provider to help form a managed trust company (subject to local regulations), offering a number of advantages.
Essentially, the institution gains an offshore presence in a respected and well-regulated jurisdiction without incurring the cost of premises and staff. The managed trust company gives it a new platform from which to offer offshore trust and company formation and administration in its own name and to expand its product range for new and existing clients.
In some circumstances, and if appropriate, this can be a first step towards establishing a managed or administered bank, or even a physical presence in the offshore centre.
A jurisdiction such as Guernsey offers particular advantages as a base from which to develop business in this way. Political stability, a strong reputation and the professional regulation of the finance sector cannot be over-emphasised. The island also has expertise in trust and company administration and offers a wide range of other business services in banking, fund administration, custodian services and investment management.
An ideal provider of managed trust company services should have experience in dealing with private clients and intermediaries and be able to provide all the administration, secretarial and accounting services needed by a trust company. It should be able to operate fully in all major jurisdictions and be able to anticipate its clients' offshore and business needs with sufficient resources to field a dedicated team for each institution.
While adhering to regulations the provider must guard client confidentiality, a feat perhaps more likely to be achieved by a small rather than a large organisation.
But what, exactly, does the provider of a managed trust company offer a third party institution? Initially, it helps the institution gain certain consents from the jurisdiction's regulatory body. Then, once the managed trust company has been formed, the provider:
supplies the personnel and premises to form and administer the trusts and companies;
assists in preparing documentation, including brochures, forms and an operating manual;
suggests appropriate computer hardware and software for recording transactions and helps the institution purchase it;
can arrange phone, fax and telex lines for the managed trust company as well as a separate post box address; and
provides registered office and company secretary services for filing all statutory and regulatory returns and producing all necessary management and annual accounts.
In Guernsey, consent is required from the Financial Services Commission before a managed trust company can be formed. In considering the request the commission will - depending on the standing and reputation of the applicant - require information about the institution itself, the reasons why it wants to form the trust company and the volume and type of business that will be undertaken on the island. The procedure in other jurisdictions varies according to local regulations
In conclusion, an institution can offer its clients many opportunities via trust and company administration in an offshore jurisdiction. But its biggest hurdle may be the cost of providing the necessary resources in terms of staff and premises.
By using an established player in a jurisdiction which has experience of trust and company formation and administration, an institution can provide its clients with all the added value of the player's expertise.
Protected cell companies
Several important changes are being introduced under the Companies (Enabling Provisions) (Guernsey) Law 1996.
Although the law has been enacted, the measures for which it provides are being brought into force gradually.
Already in force is a provision allowing the creation of a new type of company, known as a protected cell company. A further provision allows the formation of companies limited by guarantee, or partly by shares and partly by guarantee.
Other provisions will be introduced which allow:
the migration of companies to or from Guernsey;
clarification that companies involved in mergers can account for the merger without capitalising the reserves of the target vehicle, under an arrangement generally known as merger relief;
the amalgamation of two or more companies; and
the issue of shares with no par value.
Since 1 February it has been possible to incorporate a new company as, or to convert an existing company into, a protected cell company. Approval has to be obtained from the principal regulatory body in Guernsey, the Guernsey Financial Services Commission (FSC). This is only available to:
collective investment schemes regulated in the island;
insurers who are registered or are specifically exempt from registration under Guernsey's insurance law; and
companies of any other class or description that have been prescribed by the FSC.
A protected cell company is a single legal entity whose assets can be allocated to different cells in the company. Where assets have been allocated to a cell, only creditors who have entered into transactions with that cell or who have otherwise become creditors of the cell concerned have recourse against those assets. Cellular assets must be both separately identifiable from non-cellular assets and separately identifiable from the cellular assets attributable to the other cells.
Not all assets belonging to a protected cell company have to be allocated to a cell. Where they are not, the assets will be available to any creditor of the company.
Each cell must have its own distinct name or designation and a protected cell company may, but does not have to, create and issue cell shares. The proceeds of the issue of these shares become cellular assets. Dividends may be paid in respect of cell shares purely by reference to the net asset position of the cell concerned.
Where approval is obtained from the Royal Court in Guernsey the assets of an individual cell can be transferred to another company. The company concerned does not have to be incorporated in Guernsey and an order can be made allowing the transfer of assets in this way even if the protected cell company is being wound up, or is subject to an order for receivership or administration.