BVI Trust legislation changes Virgin Islands Special Trust Act, 2003 Features of the VISTA Trust VISTA Trust Considerations

BVI VISTA Trust

It is commonly known that according to the rules of English trust law trusts are designed to help preserve the value of trust investments. Because of this rule, known also as the "prudent man of business rule", the trusts have never been an appropriate vehicle for holding company shares, or assets which settlors intend trustees to retain.

There is another aspect of this rule that effectively requires trustees to monitor and intervene in the business affairs of the company. This also creates difficulties both from the settlor's standpoint and from that of the trustees.

This rule also includes a requirement to use the shareholding to maximum financial advantage, which involves, for example, an obligation to find the opportunities to diversify financial risks, that may involve a sale of the company or its underlying assets. This obligation is in conflict with the wishes of the typical family business owner and thus makes difficulties for trustees who have shares in the business of such a kind.

There is certain contradiction between the prudence required of trustees and the necessity of quick decision taking required to run a successful business, and for most settlors the idea of compulsory sale of shares just to satisfy short-term financial considerations seems not so attractive. Also, the monitoring procedures add substantially to the cost of trust administration. Furthermore, professional indemnity insurance for trustees may be problematic or too expensive. The owner will often prefer to leave to the directors, rather than to the trustees/shareholders, the question of whether the company expands, contracts, or even terminates the business.

It is not necessarily in long term interests of the company to run it in order to enhance the value of its shares, and some of most successful companies are those whose owners have managed the company themselves and have not purely brought them to short term gain. It can be summarized that trustee are between the opportunity of exposure to potential liability for failure to dispose of shares and settlor pressure to retain.

The Virgin Islands Special Trusts Act has now enabled the creation of the special type of trusts, which are known as VISTA trusts and may be utilized to circumvent these difficulties and contradictions. A VISTA Trust was adopted by the Legislative Council of the Territory of the British Virgin Islands in late 2003.

The full title of the law provides that the British Virgin Islands Special Trusts Act, 2003 is "an Act to make special provision for trusts of shares in companies and for related matters, including provision for the retention by trustees of shares in a company irrespective of the financial advantages of disposal, for prohibiting trustees from intervening in the management of the company except in certain circumstances, and for the appointment and removal of directors of the company in accordance with the terms of the trust instrument." In the other words, the Act enables shareholder to establish a trust of his company that disengages the trustee from management responsibility and permits the company and its business to be retained as long as the directors consider it necessary. This will enable special trusts to be established to cater to a settlor's intention for the company shares to be held for his children, rather than simply sold for a profit or for reducing risks.

The 'VISTA' law allows BVI trusts to circumvent the above-mentioned 'prudent man of business rule', which has traditionally made the trust an unattractive vehicle to hold long-term assets and requires trustees to monitor and intervene in the affairs of underlying companies. The Act enables a shareholder to establish a trust that disengages the trustee from management duties.

The new law permits the entire removal of the trustee's monitoring and intervention obligations. They may be retained only if the settlor wishes so. It also permits the settlor to provide the duty to the trustee to intervene to resolve specific problems and allows trust instruments to lay down rules for the appointment and removal of directors. If the trustees fail to comply with the requirements for non-intervention or the requirements for director appointment and removal, the right to apply to the court is given both to beneficiaries and directors. The sale of shares is prohibited without directors' approval.