ASSET PROTECTION TRUST BELIZE OFFSHORE
The Enactment of the Belize Asset Protection Trust Act 1992 was a much anticipated event. Word had
got around that a new piece of trust legislation was in the works in Belize and a great
deal of enthusiasm was generated by the prestigious names associated with its creation.
Mr. Milton Grundy, President of the International Tax Planners Association, and Dr.
Phillip Baker of Gray's Inn Chambers in London led a blue ribbon panel of
draftsmen, including Allen & Overy in London and several tax and estate
planners in the U.S., in designing the Act.
The Trust Act itself was well received. Reviewers were enthusiastic. One review described it
as "perhaps the most advanced trust legislation in
the world.", and for many practitioners Belize became the jurisdiction of choice for
domiciling asset protection trusts.
For all its apparent success, however, the Belize Asset Protection Trust Act 1992 remains largely
misunderstood technically by practitioners (and in particular its offshore asset protection provisions).
It is not uncommon, for instance, for commentators, especially those doing fairly
superficial reviews, such as multi jurisdictional comparisons, to list Belize as a
Jurisdiction that has not repealed the so called "law of fraudulent conveyances"
as it relates to trusts created in Belize. In fact, the exact opposite is true, the Belize
Trust Act expressly excludes the operation of this law. This, moreover; is just one of
the many misconceptions that have gained currency regarding the Act and its operations;
other examples abound.
The misconceptions: are, however, entirely
understandable - arising, as they do out of two complicating circumstances. The first is
that the Trust Act presupposes an intimate familiarity with the common law and statutory
background against which it was enacted. The second is that the innovative approach that
the drafters adopted is so straightforward that it disorientates many practitioners.
To understand, for example, how the Act
deals with the issue of fraudulent conveyances, it is necessary first to appreciate that
the law of fraudulent conveyances was not and is not now a part of
English Common Law as it was received in Belize. The law of fraudulent
conveyances is entirely a creature of statute. At Common Law a
transfer of property could not be set aside on the grounds that it was effected to defeat
the claims of creditors. It took an Act of Parliament, acting under the persuasion (some
would say "duress') of powerful banking interests, to grant creditors this
remedy. The Statute of Elizabeth, as it is now called, created the first
fraudulent conveyance law in 1571.
To exclude the operations of the law of
fraudulent conveyances, therefore, it is not necessary to amend or exclude any of the
common law, it is necessary to exclude only the operations of this particular
statute. In Belize, the relevant provisions of the Statute 0f Elizabeth were
re-enacted into Belize Law by Section 149 of the Law of Property Act.
The Belize Trust Act expressly excludes
trusts created in Belize from the operations of this Section. Subsections (6) and (7) of
Section 7 the Asset Protection Trust Act provide as follows.
7 (6) where a trust is created under the law of Belize, the
court shall not vary it or set it aside or recognize the validity of any
claim against the trust property pursuant to the law of another jurisdiction
or the order of a court of another jurisdiction in respect of:
- the personal and proprietary consequences of marriage or the termination of marriage.
- succession right (whether testate or in-testate) including the fixed shares of spouses or relative; or
- the claims of creditors in an insolvency.
Subsection (6) above shall have effect notwithstanding the provisions of section l49 of
the Law of Property Act, section 42 of the Bankruptcy Act and the provisions of the Reciprocal
Enforcement for Judgments Act.
As noted earlier; section 149 of the
Belize Law of Property Act (which is excluded by section 7(7) of the Asset Protection Trust Act) re-enacts
the provisions of the Statute of Elizabeth. To a reader familiar with the statutory and
common law background against which the Belize Trust Act was enacted it is immediately
obvious, therefore, that a trust created under the law of Belize is excluded from
the provisions of the law of fraudulent conveyance (as regards claims arising
under any foreign law).
Subsection (2) of Section 7 of the Asset Protection Trust
Act is a further source of misconception amongst practitioners. This section provides that
a trust shall be invalid and unenforceable to the extent that the court declares that the
trust was established by duress, fraud, mistake, undue influence or misrepresentation.
Here to, a reader familiar with the law of Belize will recognize that "fraud" in
this context means "an action of deceit at common law". It is distinct from the
statutory provisions originally enacted in the Statute of Elizabeth and now contained in
the Belize Law of Property Act, which render void-able voluntary conveyance made with
intent to defeat creditors.
The other circumstances that has resulted
in misconceptions regarding the Belize Trust Act is, as noted, the radical and innovative
approach of the drafters of the Act. Practitioners who are familiar with having particular
issues addressed in a particular way in the trust legislation of other jurisdictions are disoriented
by Belizes departure from traditional solutions.
Thus, for example, most of the offshore asset
protection trust jurisdictions attempt to deal with fraudulent conveyance claims
by mandating a statutory limitation period and imposition of other procedural
requirements for the prosecution of such claims. The
period may vary from six years (the standard limitation period for most actions)
to two years in the case of more aggressive offshore asset
protection jurisdictions such as Nevis, the Turks & Caicos and the Cook Islands. In
effect, in these jurisdictions the law of fraudulent conveyances continues to
apply to trusts created in the jurisdiction, subject however to time
constraints in effect a half-way house approach.
Recent judicial decisions in the Cook
Islands and the Commonwealth of the Bahamas have demonstrated the hazards of this
approach. In 515 s. Orange Grove Owners Association v. Orange Grove Partners, the
Cook Islands Court interpreted the limitation of actions provisions in their so called
"Statute of Elizabeth Override Legislation", i.e. the International Trust Act of
1984, in a way that stunned practitioners.
The case turned on the question of whether
the relevant statutory limitation period started to run (a) from the date the trust was
created, or (b) from the date on which the judgment which it was sought to enforce
against the Settlor was issued. The court on a preliminary application for an interim
injunction held that the limitation period started to run from the latter date
(enforcement action). After reversal by the High Court, this decision was confirmed by the
Court of Appeal. In delivering the decision of the Court of Appeals, Sir Duncan McMullin
said, "it should not be lightly assumed that parliament intended to defeat the claims
of creditors by allowing international trust to be used to perpetuate a fraud against a
creditor". The Court also commented: "we would be loathe to interpret the
International Trusts Act as a statute which was intended to give succor to cheats and
fraudsters by totally excluding the legitimate claims of overseas creditors. We cannot
think that parliament ever intended that by passing the International Trusts Act the Cook
Islands should become the Alsatia in the South Pacific from which the commercial comity of
nations was completely ousted. "This dicta, particularly the reference to
"cheats and fraudsters", suggests that the learned Judge of Appeals failed to
distinguish in his mind between common law fraud, i.e. deceit, on the one hand, and a
transfer to defeat the claims of creditors on the other. This failure resulted, in
great measure, from the half-way house approach adopted by the drafters of the
(Cook Islands) International Trusts Act.
One commentator noted, "this holding
goes a long way towards gutting the Cook Islands legislative scheme, because it gives
creditors who first obtained a judgment in the United States the ability to sue on the
judgment in the Cook Islands, without being barred by the "Statute of Elizabeth
Override". The effect of this decision has been considerably mitigated by subsequent
legislative events in the Cooks. Nonetheless, the case does illustrate the hazards of
adopting the traditional statutory limitation period solution to the fraudulent conveyance
A similar problem arose in the
Bahamas which has also adopted a half-way house approach to The Statute of Elizabeth.
In Grupo Tomas v. S.F.M. Al Sabal, Chemical Bank & Trust (Bahamas) and Private
Trust Corporation, the case turned on the same question, i.e. whether the statutory
limitation period had expired before action was brought. In refusing to discharge an
interlocutory Mareva injunction against the assets of the "Bluebird Trust", (a
trust created under the law of the Bahamas by one Sheikh Fahad), senior Justice Joan
Sawyer said: "aside from the fact that there is no evidence that the Bluebird Trust
was established to avoid or minimize Sheikh Fahads or his familys exposure to
taxes either in England or in Kuwait, it seems to me that it is one thing to ascribe to
the parliament of the Bahamas an intention to make the Bahamas more attractive as a
"tax haven" by encouraging the establishment in this jurisdiction of what is
referred to in some commercial circles as "offshore asset protection trust". But it is
quite a different matter to attribute to parliament an intention of allowing the
Bahamas position as a legitimate tax haven to be used as a cover for fraudulent
activity which has little or nothing to do with a minimization of taxes or the protection
of honestly acquired assets from the sometimes unreasonable demands placed on those
assets, e.g. as a result of an award of damages against a professional person."
While senior Justice Sawyers comes much
closer than does Sir Duncan to recognizing the distinction between fraud at common law and
statutory conveyances, i.e. transfers to defeat the claims of creditors, the distinction
is still not clearly drawn. Here too, the failure clearly to make this distinction
arises from the decision of the Bahamas Parliament merely to limit rather to exclude
altogether the operations of Statute of Elizabeth as it relates to trusts.
Belize Asset Protection Trust Removes Fraudulent Conveyance Invalidation Arguement
Belize, on the other hand, adopts
an entirely different approach. Rather than applying
a statutory limitation period to the Statute of Elizabeth provisions, it excludes
these provisions altogether. In this
context the question of whether the Settlor intended to defeat the claims of the
creditor is irrelevant. In the absence of actual fraud, i.e. deceit, in the
establishment of the asset protection trust, the assets of a Belize trust cannot be attached to satisfy the
judgment of a foreign court based on any foreign law. This is so even if the transfer is
done with the specific intention of defeating the claims of creditors, and whether the
claim and/or the judgment arose before or after the trust was created.
This unequivocal position of the Belize
legislature is of great assistance to judges who have to consider specific applications of
the Belize Asset Protection Trust Act.
In Securities and Exchange Commission v.
Banner Fund International the U.S. SEC. Applied for an order to compel the trustee for a
Belize trust to disclose information and surrender certain assets of the trust. On the
substantive hearing of the application the Supreme Court of Belize refused the order on
the ground (inter -alias) that the application contravened the relevant provisions of the
Belize Asset Protection Trust Act.
Mr. Justice Traodio J. Gonzales noted:
the Asset Protection Trust Act goes to great lengths to reserve jurisdiction over
Belize trust to the Belize Courts. Section 7(2) of the Act provides that only
a Belize Court has the power to declare a Belize trust invalid. By section 7(6), Belizean
Trusts are granted specific immunity against the judgments of foreign courts or claims
based on the law of any foreign jurisdiction. In a jurisdiction, such as Belize,
which offers international investors confidentiality and protection of their assets
against foreign litigants and which has passed law towards those ends, it is important
that judges, mindful of the legislatures intention as set out in the law, support
these principles of confidentiality, inviolability and exclusivity of jurisdiction".
Clearly, a Belize judge, buoyed by the
unequivocal exclusions of the operations of the Statute of Elizabeth that obtains in the
Belize Act, can afford to be bolder in rejecting "fraudulent conveyance" claims
based on foreign law than can his colleague in jurisdictions that merely limit rather than
exclude altogether the Statute.
Understanding the operations of the Offshore Belize Asset Protection
Trust Act (and particularly its asset protection features) requires both detailed
knowledge of the legal background against which the legislation was enacted, and the
careful study of those features of the Act that depart from traditional
solutions. As recent judicial decisions have demonstrated, however, the advantages
conferred by the Belize Asset Protection Trust Act may well be worth a detailed study of its innovations.
By Glen D Godfrey, Glen D. Godfrey & Co, Attorneys -at- Law, Belize
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