The Royal Court of Jersey has recently heard the second application under the Foundations (Jersey) Law 2009 (the “Foundations Law”). The Application was from a trust company in its capacity as the sole council member of a set of foundations (the "Foundations"). The trust company sought directions as to whether it could amend certain provisions of the Foundations' constitutional documents. If the Court found that the trust company had the requisite powers, the trust company sought the Court's approval in making the amendments.

This judgment will be of interest to Asian high net worth families and their advisors because Jersey is a popular offshore jurisdiction, and more and more Asian high net worth families are considering using foundations in their structures.

Background

The Foundations held the assets of the estate of a deceased husband and father. The Foundations were established in response to tax advice received by the deceased's daughters. The majority of the deceased's family, excluding one grandson, lived in a certain foreign jurisdiction. The purpose of the Foundations was to mitigate tax in light of changes to the law of taxation of trusts in that foreign jurisdiction. The advice the daughters had received was that if assets were moved from trusts to foundations, no tax filing or payment obligations would arise in the foreign jurisdiction.

Under the provisions of the Foundations' constitutional documents, the members of the deceased's family who lived in the foreign jurisdiction were 'excluded persons'. This meant that only the grandson living outside the foreign jurisdiction was a beneficiary of the Foundations.

The advice received turned out to be incorrect. This meant a significant tax liability would likely arise in the foreign jurisdiction on the assets held in the Foundations. The applicant applied for directions for determination, amongst other things, of whether amendment of the definition of ‘excluded persons’ (so as to enable the other members of the deceased’s family to become beneficiaries) was within its powers and whether it could restructure and subsequently dissolve the Foundations. If the answer to these questions was yes, the applicant sought the Court’s blessing in undertaking these actions.

Judgment

The Court considered the Foundations Law, which enabled the Court to give directions to assist a foundation. The Court held that under the provisions of the Foundations Law, the trust company as sole council member of the Foundations did have power to make the desired changes and to ultimately dissolve the Foundations. The Court further considered that, having regard to the similar jurisdiction the Court has in relation to trusts, the acts the applicant wished to take in relation to the Foundations were made in good faith, the applicant was acting as a reasonable council member would and had not been vitiated by any actual or potential conflict. In deciding this, the Court noted that it was an important factor that all members of the deceased’s family had signified their full support for the relief the application sought. Accordingly, the Court blessed the proposals of the applicant.

Comment

The decision is a useful illustration of how the Court has “supervisory jurisdiction” over Foundations which are incorporated under the Foundations Law. It is worth noting that, even if the Court had not considered the proposals were within the applicant’s powers under the terms of the Foundation, the Court found that it would have still been minded to make the changes the Applicant desired under its supervisory jurisdiction. The Court has broad powers under the Foundations Law and the decision indicates that it will not shy away from exercising such powers if the circumstances require it.