The Virgin Islands Special Trusts Act, 2003 came into force just over a decade ago – on 1 March 2004. It creates an alternative, opt-in, trust regime which is specially designed for situations in which shares in companies are placed in trust. When a VISTA trust is established the trustee is largely disengaged from its obligations to monitor the affairs of controlled companies and, especially, from the need to intervene by exercising its shareholder powers to change directors.
Now that VISTA has been around for over 10 years, Chris McKenzie of O’Neal Webster, who chaired the STEP committee the proposals of which led to the enactment of VISTA, answers some frequently-asked questions about the legislation.
How many VISTA trusts have been set up, where are the settlors generally from and what assets are typically held in VISTA trust structures?
It is not possible to specify with any degree of precision how many VISTA trusts have been set up, since trusts are (still) confidential arrangements and, as with the UK, there is no trust register in the BVI. However I have been told that several of the larger BVI trust companies each act as trustee of more than a thousand VISTA trusts and many of the smaller licensed trustees (of which there are hundreds) will also act as trustees of dozens of such trusts. My guess is that there are therefore probably at least 5,000 and possibly more than 10,000 VISTA trusts around. The numbers are increasing rapidly as a consequence of the relaxation on the restriction on trusteeship of VISTA trusts and those on transferring assets from existing trusts to new VISTA trusts. These issues are considered in more detail below.
The settlors of VISTA trusts come from all over the world. VISTA is especially popular in the Eastern Europe, Latin America and the Far East where there are many wealthy individuals who are not yet used to trusts but who have a full understanding of the corporate structure and are therefore very comfortable with the VISTA trust regime which enables directors to run companies largely free from shareholder intervention, which is what these settlors are mainly used to.
The assets which are directly held by the trustees of a VISTA trust would need to comprise shares in BVI companies, since this is a requirement of the legislation, but invariably other assets would be held below the BVI company so that VISTA would indirectly apply to those assets. These assets might typically include shares in non-BVI trading companies, assets which are regarded as ‘unusual’ (i.e. from the narrow perspective of English trust law) such as commercial assets, ships, aeroplanes and so on.
As far as the overall value of the assets which are held in VISTA structures is concerned, this can only be the subject-matter of speculation. I myself have been involved in the establishment of around half a dozen structures in each of which the value of the underlying assets exceeded $1 billion. On this basis I do not think it would be wildly off the mark to speculate that assets worth dozens (or possibly hundreds) of billions of dollars are held in VISTA trust structures.
Can a trustee which does not have a BVI trust licence act as a trustee of a VISTA trust?
Yes. Although it was originally a requirement of the legislation that VISTA trusts could only have sole trustees, and that those trustees were required to have BVI trust licences, these restrictions have now been relaxed. VISTA trusts established after 14 May 2013 can have more than one trustee, as long as one of the trustees either has a BVI trust licence or else qualifies as a BVI private trust company (PTC).
Accordingly a company which does not hold a BVI trust licence, such as a professional service provider which is licensed elsewhere, has a number of options if it wishes to take advantage of the legislation – and in particular its attractiveness to settlors who do not want the trust-shareholder to have any role in a company’s day-to-day management (and its inevitable attractiveness in terms of exonerating trustees against Bartlett-type liability). The foreign service provider can for instance act as co-trustee of the relevant trust, so that the other trustee is a licensed BVI trust company or a BVI PTC. Alternatively it can set up a bespoke PTC to act as the sole trustee (or as one of the trustees) of the trust and provide support services to the PTC.
BVI PTCs are very popular and tend to tick all the right boxes in terms of the factors which settlors and their advisers look at when selecting a jurisdiction in which to set up a PTC. There is no need to establish a physical presence in the BVI, nor to appoint a local director or indeed any directors who are required to satisfy specified criteria; nor are there any capitalisation requirements. Confidentiality is preserved since there is no need to file directors’ or shareholders’ details either publicly or with the regulatory authorities and only the PTC’s memorandum and articles will be filed publicly. The latter will, in most cases, be standard documents which reveal little more than the name of the company, the fact that it is a PTC and which BVI service provider acts as its registered agent. There is certainly no requirement to disclose publicly (or to the regulatory authorities) any details of the settlor or settlors or the names (or assets) of the trusts of which the PTC acts as trustee. Importantly for many clients, from a costs perspective, the BVI is also one of the most competitive jurisdictions in the world to use for PTCs.
Is it correct that if a non-VISTA trust has been set up (say under the laws of another jurisdiction) its assets cannot be transferred to or appointed out to the trustees of a VISTA trust?
Until 15 May 2013 there were restrictions in the VISTA legislation which made it less than straight forward to ‘VISTAize’ the assets of a non-VISTA trust. This proved to be frustrating for settlors and their families on the one hand and for trustees of existing trusts on the other. The settlors and their families were keen for the directors of the underlying companies and their subsidiaries being able to run the companies free from threats of intervention and were not keen on trustee-shareholders looking over directors’ shoulders, threatening to remove them and questioning management decisions purely with a view to reducing their own exposure to liability, especially since this tended to put up their fees significantly but without any extraneous justification. Furthermore many risk-averse trustees were keen to take advantage of the statutory protection which is enshrined in VISTA which exonerates them against liability for not intervening in underlying companies’ affairs (i.e. in the absence of a written call for intervention by a beneficiary or another ‘interested person’).
Accordingly, following further recommendations from the STEP committee which I then chaired (and which is now chaired by my partner, STEP BVI branch chair, Vanessa King), the legislation was amended to enable transfers or appointments to be made from existing trusts to VISTA trusts provided four conditions are satisfied.
The first condition is that the VISTA trust to which the assets are appointed or transferred must have been set up after 14 May 2013; there is, however, no requirement to the effect that the trust from which assets are appointed or transferred (the transferor trust) must have been set up after that date. Secondly the transferor trust must (clearly) include the necessary powers of appointment or transfer (and if this is not clear advice should be sought). Thirdly one of the trustees of the transferor trust (or its sole trustee) must either be a licensed BVI trustee or a BVI PTC. If none of its trustees fulfils this requirement, a change of trustees (and, if necessary, the establishment of a BVI PTC to act as trustee) should be considered. Finally the governing law of the transferor trust must be BVI law. If that trust is currently governed by the laws of another jurisdiction, a change in its governing law should also be considered.
Is it correct that VISTA only applies to the trustees’ administrative powers and not to its dispositive powers?
Yes. VISTA basically only affects the trustee’s investment powers and the powers which it would otherwise have as shareholder of a company. As indicated above, its powers to intervene in the affairs of controlled companies (and their subsidiaries), and especially its powers to change companies’ directors, are severely circumscribed by the statute. Furthermore, the shares cannot be sold unless the directors (or those given the relevant consent powers by the trust instrument) agree – thus thwarting the ability of a trustee to sell shares contrary to the wishes of the settlor of a typical trust who may not regard the shares as a mere impersonal investment but who, rather, is more likely to wish them to be retained until disposed of in accordance with the trust’s dispositive provisions.
Although VISTA only affects trustees’ administrative powers, many VISTA trust instruments will (independently of VISTA) include provisions conferring dispositive and other significant powers on the settlor, protector or protective committee of the trust. Such powers might include the power to change the trustee, powers to add and exclude beneficiaries, overriding dispositive powers of appointment and powers to consent to (i.e. effectively to veto) the exercise of some of the trustees’ most significant powers, such as their most important dispositive powers.
VISTA trusts are the BVI’s version of Cayman’s STAR trusts – right?
Wrong. There are, as far as I see it, only four similarities between VISTA trusts and STAR trusts. First, both are special alternative opt-in trust regimes which will only apply to the trust if there is a direction to that effect in the trust instrument. Secondly both these sophisticated and carefully thought-out trust regimes are known by acronyms. Thirdly both regimes include restrictions on trusteeship: as I have mentioned one of the trustees of a VISTA trust must be a licensed BVI trust company or a BVI PTC (and there are corresponding requirements in Cayman’s Trusts Law relating to the need for STAR trusts to have a licensed Cayman provider or a Cayman PTC as trustee). Finally VISTA trusts are sometimes set up as purpose trusts rather than beneficiary trusts and, given that Cayman STAR trusts will often be purpose trusts, the uses to which the two regimes can be put will sometimes be similar. In fact, the BVI’s nearest equivalent to Cayman’s STAR trust legislation is its non-charitable purpose trust legislation (which is now contained in section 84A of the Trustee Act) rather than its VISTA trust legislation, albeit that (perhaps confusingly), as I say, VISTA trusts can take the form of purpose (i.e. STAR-like) trusts.
VISTA is essentially a bespoke trust regime which is specially tailored to situations in which trust assets are to comprise shares in companies whereas the STAR trust regime is one which is tailored to situations in which purpose trusts are to be created and/or beneficiaries’ rights of enforcement and/or trust information are to be restricted or removed.
In part 2 of this article Chris considers the application of the rule against perpetuities to VISTA trusts and the issue of the recognition of VISTA trusts by the courts of other jurisdictions.
This article was first published in the STEP Journal at the beginning of September, 2014 having been written specifically for the Journal to celebrate the 10th anniversary of the coming into force of the BVI’s VISTA trust legislation.