Although still a common vehicle for joint property-holding ventures, GPUTs reached a peak of popularity between 2003 and March 2006 because of their exclusion from the application of Stamp Duty Land Tax on UK property transfers. Many GPUTs, established for tax planning, are not expected to be particularly long-lived and will be wound up. As a Guernsey trust, a GPUT is regulated by the Trusts (Guernsey) Law, 2007 (the "Law"), but in reality there is very little stipulated in the Law in relation to the creation, operation or termination of a GPUT and it is the trust instrument which will govern its termination and the distribution of its assets. There is no public register of GPUTs.
Commencing the Termination
The trust instrument will determine the procedure for commencing termination. Typical trust provisions are for termination after a certain period, on the occurrence of a specified event (such as the failure to find a replacement for a retiring trustee) or on a resolution of the unitholders. Under Guernsey law a unanimous resolution of the unitholders will serve to require the trustee to terminate the GPUT.
Procedure on Termination
On the termination of a GPUT the trust property is to be distributed by the trustee to the unitholders within a reasonable time in accordance with the terms of the trust instrument. There is no requirement for the appointment of a liquidator, and there are no provisions of Guernsey law regulating the method of winding up. No filings need to be made with any authorities in Guernsey (although it is good practice to advise the Guernsey Financial Services Commission when a GPUT has been terminated), and the timescale for completing the process will be determined by the time required to realise assets, discharge liabilities and distribute the remaining assets rather than any timescales set down by Guernsey law. Following the distribution of the trust property the GPUT will automatically come to an end without further formality.
There are no formal requirements to advertise for creditors, and in practice this is not usually done as the trustee will be familiar with any claims on the trust property.
Prior to commencing the termination of the GPUT, the trustee will generally terminate the appointment of any third party service providers, such as the property manager, investment manager, administrator and other advisers or delegates. Trust instruments commonly provide that, on termination of the GPUT, the trustee must realise the assets of the GPUT and then repay any borrowings. After payment by the trustee of the GPUT's liabilities (or retention by the trustee of an amount sufficient to cover such liabilities) the trustee will generally proceed to distribute the net proceeds of realisation of the assets among the unitholders in proportion to the number of units they hold. Trust instruments often provide that assets may be distributed in specie. Interim distributions can be made where the trust instrument provides for it.
The Law states that a trustee may require to be provided with reasonable security for liabilities whether existing, future, contingent or otherwise before distributing trust property. The trustee may and, in virtually all cases will, request an indemnity from the unitholders to whom the property is distributed covering such liabilities.
The purchaser of a GPUT who wishes to wind up the trust will want to limit its potential for liabilities incurred, for example, by the trustee prior to the purchaser obtaining the units. Most purchasers of units would seek to minimise this risk by: (i) conducting all necessary due diligence on the property and the GPUT prior to the purchase, and seeking appropriate warranties; and (ii) if appropriate, seeking indemnities from the vendor(s). Most indemnities will be negotiated on a case-by-case basis taking into account the interests of all parties.
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.