Good morning, I thought you may like some Friday (27/6/18) reading focusing on trustee/ trust admin matters, Enjoy J

Trusts (Amendment No.7) (Jersey) Law 2018

1. What’s it about?

a. Some changes to the Trusts (Jersey) Law were made with effect from 8 June 2018.

b. Many of the changes are minor/clarificatory in nature, but there are a few points of interest for legal practitioners, trustees and trust administrators.

2. How does this affect you?

a. For those who work with trusts, you should familiarise yourself with the changes to Article 9A, which clarify the extent of powers which can be reserved to the settlor, as well as the new Article 29 (which confirms the extent to which third parties may require disclosure of information/documents about the trust) and Article 43A (which provides for a trustee’s right to “reasonable security” on a change of trustee).

b. In light of these changes consider amending policies, in particular regarding disclosure to third parties,

3. Legal view:

a. the Trusts (Jersey) Law, which reflect the direction in which practice is heading and should also bring greater flexibility to Jersey trust structures.

Z Trusts – on the question of the order of priority of creditors of an insolvent Jersey trust

1. What’s it about?

a. On 3 July 2018, the Royal Court handed down its much anticipated judgment in the latest instalment of the Z Trusts case on the question of the order of priority of creditors of an insolvent Jersey trust ([2018] JRC 119).
b. It was successfully argued that such creditors should rank pari passu rather than on a first in time basis and successfully defeated a claim by a former trustee that it should have priority over all other creditors on the basis that its lien was equivalent to an all monies floating charge.

2. How does this affect you?

a. Trustees must give careful consideration to the incurring of liabilities generally, as their own claims will not rank ahead of creditors or later liabilities incurred by subsequent trustees.
b. In particular, they must consider carefully the taking of security on retirement.

3. Legal view

a. the Court has taken the logical step of establishing a regime which is practical and fair both for trustees and for counterparties dealing with trustees.
b. It reflects a direction in which the Court has been moving in the area of insolvent estates (see Re Hickman [2009] JRC 040) and is consistent with the development of personal and corporate insolvency legislation.
c. It should help to bring fairness and order to trust insolvencies

Investec Trust (Guernsey) Limited and others v Glenalla Properties Limited & others – a distinction between a trustee’s personal capacity and capacity “as trustee”.

1. What’s it about?

a. The court considered the application of article 32 of the Trusts (Jersey) Law 1984 and held there is a distinction between a trustee’s personal capacity and capacity “as trustee”.

b. Further, a liability incurred “as trustee” may not be enforced against the trustee’s personal assets. It was held that an unsecured creditor does not have a direct right of enforcement against trust assets but must exercise its claim against the trustee who will seek to use its right of indemnity against trust assets.

2. How does this affect you?

a. Trustees entering into documents in a trustee capacity should ensure the contract clearly states that the trustee is contracting in its trustee capacity.
b. Any creditor entering into arrangements with a trustee should ensure that obligations are secured against the trust assets to enable direct enforcement.

3. Legal view:

a. This case clearly distinguishes a trustee’s liability and limits enforcement by creditors to the trust assets which protects both beneficiaries and trustees but places a potentially significant burden upon unsecured creditors.
b. While the case was not decided within the Jersey court structure, the Privy Council’s views are likely to be a greatly persuasive authority to the Jersey courts

Halabi v Wilson – waive restrictions on the use of documents obtained by a UK trustee in bankruptcy from Jersey banks and trustees

1. What’s it about?

a. On 22 June 2018, the Court of Appeal upheld a decision of the Royal Court to waive restrictions on the use of documents obtained by a UK trustee in bankruptcy from Jersey banks and trustees following the recognition of his appointment under Article 49 of the Bankruptcy (Désastre) (Jersey) Law 1990 ([2018] JCA 114).

b. The purpose of the waiver was to enable the trustee to comply with a notice issued by HMRC under Schedule 36 of the Finance Act 2007 for the purposes of a tax investigation.

2. How does this affect you?

a. The decision affects the future of mutual assistance in insolvency.
b. In future, where a foreign trustee or liquidator seeks recognition of its appointment and the production of documents, Jersey service providers will have to give serious consideration either to opposing such orders or seeking the imposition of restrictive conditions such as non-removal of the documents from Jersey).

3. Legal view:

a. Justin Harvey-Hills (Partner, Jersey) and Ben Thorp (Senior Associate, Jersey) from Mourants represented a creditor of a trust who had an interest in preserving the confidentiality of the documents.
b. Mourants view is the court did not have power to waive these requirements, given the clear terms of Article 49 and the existence of the TIEA legislation.
c. They suggest, unless the case is appealed, it will represent the law going forward and it is likely to jeopardise future mutual assistance in insolvency.