Features of the BVI VISTA Trust

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The British Virgin Islands (BVI) recently enacted a far-reaching and enabling trust law known as the Virgin Islands Special Trust Act 2003 (VISTA). This new law makes the BVI jurisdiction very attractive for certain types of trusts as it provides settlors with a level of freedom and protection that were either previously absent from or insufficient in alternative trust laws.

Commonly referred to as a VISTA Trust, these new Trusts contain a variety of significant features, some of which are highlighted below.

 

Removal of obligation to maximize share value

The new Act (unless otherwise stated in the Trust Instrument) stipulates that Trustees primary duty is to retain the designated shares of the trust fund and this takes precedence over any duty to preserve or enhance their value. In other words, Trustees are not be liable for the consequences of holding the shares but may be held liable for disposing them: Trustees may only dispose of the shares with the consent of the directors of the company or by authorization of the court. Regarding the latter, beneficiaries and other interested persons may apply to the court for enforcement of the terms of the Act.

 

Removal of management responsibility

Under the Prudent Man of Business Rule, trustees of trusts are obligated to monitor performance of the companies in which they hold shares, intervene where necessary and add value to the shares. Although this requirement has been mitigated to some extent by related legislation, to this point Trustees have had the obligation to monitor performance and to intervene in at least some circumstances.

With the removal of these two historic obligations of Trustees, Settlors in a Vista Trust are now allowed to create trusts holding shares in BVI companies that completely disengage the trustees from management responsibility of such companies. Unless the trustees are acting on an “intervention call”, they may not exercise voting and / or other powers which interfere in the management and conduct of any of business of the company.

 

Specification of Trustees Voting Powers

The VISTA Act allows for the inclusion of the ‘Office of Directors Rules?(ODRs), specifying the manner in which the Trustees may exercise their voting powers in relation to appointment, removal and remuneration of Directors. For instance, the ODRs may compel the Trustees to exercise their voting rights to ensure that a particular person holds office as Director or be removed as Trustees under specified circumstances. The regulation of Trustee voting powers through the Trust Instrument provides the Settlor and Directors with clarity on how the Trustees can exercise their voting powers in given situations.

 

Non-Application of Saunders v Vautier Rule

The rule of Saunders v Vautier does not apply to VISTA trusts (for a 20-year period) where reference to the application of such rule has been excluded from the trust instrument. In effect neither a beneficiary who is solely interested in any designated shares, nor all of the beneficiaries who together are the persons interested in any designated shares are entitled, to call for or direct a transfer of those shares or to terminate or modify the trust relating to them for the stipulated period.

 

Scope of the VISTA Act Application

 Shares in a VISTA Trust are restricted to those in BVI International Business Companies (IBCs) and BVI Companies Act companies where such companies are not licensed as a manager or administrator of mutual funds under the Mutual Funds Act 1996, registered as a public fund, or recognized as a private fund under the Mutual Funds Act 1996. The VISTA Act does not apply to BVI trusts generally, it may be only applicable to normal non-Vista trusts if stipulation(s) in the trust instrument direct the application of the Act.

 

Some Opportunities for use of VISTA Trusts

Matrimonial Settlements

  • children of spouse cannot force trustee to appoint them as directors in the future
  • may prevent the forced sale of company to pay for financial settlements

 

Corporate and Personal Succession Planning

  • gives the Settlor the right to maintain the current investment portfolio and not diversify
  • prevent forced termination of trust and sale of assets (non-applicability of Saunders v Vautier Rule)
  • enhances the prospect of the company’s long-term growth, partly due to non-interference from trustee and ability of directors to engage in long term planning
  • restricts disputes to BVI courts since Trustee, Trust and company are all in the BVI

 

Commercial Purposes

  • gives the directors the freedom / latitude to diversify or not diversity assets and enter into commercial arrangements
  • directors retain the ability to make quick decisions
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