Guernsey has a long history of being a well-respected private wealth jurisdiction and one that has always looked to diversify its offering.
Indeed, recent years have evidenced this more than most. Just some of the developments in the fiduciary industry include creation of the world's first image rights register and accompanying legislation, the introduction of Guernsey's own foundations legislation and the launch of the Guernsey-based 2-REG, the Channel Islands Aircraft Registry, at the end of 2013.
Most recently Guernsey introduced its own form of Limited Liability Partnership (LLP) with effect from May 2014 in response to increasing demand for this type of structure.
It becomes clear when looking at some of these innovations more closely how Guernsey's heritage of more than 50 years in the provision of financial services has created an environment capable of catering for the widest range of client needs.
2-REG, the Channel Islands Aircraft Registry
For example, figures towards the middle of this year reveal that 60 aircraft previously registered in 18 different jurisdictions around the world including China, the UK and the USA, have transferred their registration to Guernsey since the launch of 2-REG in December 2013.
In addition, aircraft de-registered in Guernsey have been re-registered in 15 countries abroad, including in places such as Fiji, Indonesia and Korea, facts which serve to highlight the international appeal of both the Registry and Guernsey's financial services offering.
2-REG has also proved appealing in respect of a range of types of aircraft, with everything from light aircraft with a maximum take-off weight below 5,700kg to an Airbus A330 with a maximum take-off weight of 233,000kg being registered.
In contrast to expectations, the Registry has proven particularly attractive as a place to register 'between lease' or 'off-lease' airliners and as a consequence 28 of the 60 registered aircraft are lessor-owned commercial aircraft, such aircraft typically being larger, heavier aircraft such as Boeing and Airbus passenger jets. A particular selling point of 2-REG is that it is operated on a business-to-business basis which allows for excellent customer service and a pragmatic approach to registrations all within a strong safety and regulatory environment.
In particular, the ability of the 2-REG to register and de-register aircraft quickly, sometimes in less time than it would take to even get an appointment with an airworthiness inspector in other jurisdictions (a required step in most jurisdictions before an aircraft can be registered or de-registered) has appealed to a range of users and particularly to lessors looking to efficiently de-register and re-register the aircraft they own at the end of one lease and before the beginning of another.
The Guernsey foundation
The introduction of the Guernsey Foundations law has given service providers an added level of flexibility and an extra tool on the menu of options available for best meeting client needs via Guernsey structures.
The Guernsey foundation is an incorporated entity with a separate legal personality. However, it does not have shareholders to whom its board are accountable. Instead, the foundation is designed to hold assets which have already been acquired and to preserve, rather than risk them, on behalf of beneficiaries in accordance with the foundation's constitution.
The foundation's constitution comprises a charter setting out the foundation's purpose, initial assets and duration (which may be unlimited) as well as rules prescribing, among other things, the functions of the council and procedures they must follow. There are no 'trustees' and instead, council members perform a similar role by having a duty to the foundation to act in good faith, and cannot, without express authorisation, profit directly or indirectly from their position.
Guernsey has taken note of the fact that some clients may worry about confidentiality because as foundations are registered entities, they are, unlike trusts, publicly visible. In Guernsey, only limited details are available to the public (although full disclosure must be made to the registrar) whereas in other jurisdictions such as Jersey and the Isle of Man, the whole charter is commonly visible. Yet, Guernsey's approach also means that this limited visibility offers the benefit of easily proving the foundation's existence quickly when dealing with third parties.
Another innovation of the Guernsey foundation is the classification of beneficiaries of a foundation as either being 'enfranchised' or 'disenfranchised'. Enfranchised beneficiaries will have rights to certain information regarding the foundation, whereas disenfranchised beneficiaries are not entitled to any information at all. Where there are disenfranchised beneficiaries then the foundation is required to have a guardian.
The guardian owes the beneficiaries a duty of care in the discharge of his duties, thereby ensuring that the council remains accountable while shielding the disenfranchised beneficiaries from certain information or at which point (e.g. reaching a certain age) a beneficiary from one class can become a beneficiary of the other.
Foundations currently domiciled in other jurisdictions can also be migrated to avail of the robust and flexible regime available in Guernsey.
Whilst LLPs have been introduced in several other jurisdictions, including the UK (from 2000), in drafting the Guernsey law we have had the advantage of being able to learn from those other regimes to develop an alternative business structure that will be attractive to a wide variety of users, both domestic and international.
At its core Guernsey's LLP legislation is based on the UK's 2000 version, but with key differences which aim to improve upon that regime. Guernsey LLPs are bodies corporate with separate personality from that of their members. They have the ability to own their own assets and to sue and be sued in their own name. Guernsey LLPs also have unlimited capacity and may do anything that a legal person can do.
A Guernsey LLP must have two members but the UK concept of 'designated members', has not been copied. As a result, the members have complete flexibility to determine the ownership, operation and management of their LLP.
We anticipate LLPs being used particularly by professional businesses as vehicles for investing globally and as asset holding structures. In addition, it should be noted that the law includes specific provisions for existing Guernsey partnerships to convert to LLP status and that LLPs are able to migrate into and out of Guernsey. We have so far seen plenty of interest significant interest in Guernsey LLPs for a wide variety of purposes and we look forward to seeing applications coming into the Guernsey Registry, including from those structures currently domiciled in other jurisdictions but wishing to avail themselves of this new, modern and flexible legislation.
Traditionally, the main way to protect the IP in a personality has been through trade mark rights. While there are other related IP rights that come into play, such as copyright and design rights, trade marks are the most relevant. However, they only go so far in protecting the rights of the modern celebrity, whose interests are more wide ranging than have historically been the case. The Guernsey image rights legislation addresses the needs of the modern marketplace by allowing a personality to formally register not only images but also other characteristics of themselves.
The main benefit of this is to create a formal registerable right that provides clarity and flexibility. It also effectively covers all manner of activity conducted in the personality's name, which means the legislation offers a high degree of protection when considering the use of the celebrity's image by unauthorised third parties. In addition, the personality and image rights can be licensed, assigned and generally dealt with separately, allowing complete freedom in their use and operation by the personality or their licensees.
High profile image rights registrations to the Guernsey Registry since its introduction include Manchester City Manager Manuel Pellegrini and Britain's top female tennis player, Heather Watson, as well as current and former England international footballers, European-based basketball players, models, TV personalities and current music chart acts.
Looking even further back than some of these more recent introductions it is important not to forget that Guernsey was responsible for pioneering the cell company concept with the introduction of the Protected Cell Company (PCC) for use in the captive insurance sector. The subsequent success of this innovation is illustrated by the fact that the cell company is now used across the financial services world as an alternative application for the structuring of many different types of products such as those individuals and families might seek when utilising family office services from their wealth managers.
Guernsey was also one of the first jurisdictions in the world to regulate trust providers and for example, the UK amongst others still does not have a regulatory regime for trust providers. Guernsey updated its trust law in 2008, which included abolishing the personal liability of directors in Private Trust Companies (PTCs) as a way of encouraging greater use of such entities and the introduction of Purpose Trusts. Similarly, Guernsey modernised its Companies Law in 2008 – with changes that including placing fiduciaries as the gatekeepers to a more streamlined company incorporation process, which itself was facilitated by the opening of a new modernised, automated, Company Registry.
What becomes clear when looking at recent developments across our private wealth sector is that it remains an exciting time for Guernsey. The addition of LLPs to our wider private wealth management offering on top of other recent introductions such as a tailored foundations law, Guernsey's world-first image rights legislation and our own aircraft registry, 2-REG, are yet further examples of what sets the Island apart from other IFCs and demonstrates that Guernsey's hard-won reputation for creating an environment synonymous with innovation and high standards shows no sign of slowing down.
An original version of this article was published in Offshore Investment, November 2015.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.