Guernsey: Guernsey Foundations Explained

Last Updated: 10 June 2013
Article by Gavin Ferguson

Most Read Contributor in Guernsey, September 2018

Now the Foundations (Guernsey) Law, 2012 (the Law) is in force, Gavin Ferguson, Managing Partner at Appleby in Guernsey, recaps on why Guernsey introduced the Law, looking at the key features and uses of the Law and also speculating on the future of Guernsey foundations.

Why did Guernsey bring this civil law concept onto its statute books? Wind the clock back nearly nine years to 2004 - the States of Guernsey's Economic Development Unit set up a Working Party to look at the then Guernsey trust statute and how it could be improved. With the primary objective of considering what would work best for Guernsey's finance industry, the Working Party extended its remit and also considered the introduction of a new foundation vehicle into Guernsey law.

However, it wasn't until a few years thereafter that a draft law was prepared by the Law Officers draftsmen, who consulted with leading independent experts and then with Guernsey's fiduciary industry. The delay in preparing the Law was due to a number of factors including:

  • the drafting of a new trusts statute;
  • the drafting of substantial updates to Guernsey's company legislation;
  • consideration of some concerns raised over the introduction into Guernsey of a concept which had come under criticism in less well regulated jurisdictions; and
  • the introduction by our sister island Jersey, of its foundations legislation in 2009 - from which it was useful to see if there were any lessons that could be learnt from how their law was received.

Key features of the Law

As a result of careful drafting and consultation, Guernsey has a foundations law which looks and feels more like a traditional civil law foundation than some of its competitor jurisdiction, but which incorporates some innovative aspects. Some of the key features include:

1. The incorporation of provisions (similar to that in the Trusts (Guernsey) Law, 2007) protecting Guernsey foundations from foreign rules of forced heirship and foreign court orders.

2. The creation of two categories' of beneficiaries:

  • those with certain rights to information relating to the foundation, including accounting information and copies of the constitutional documents - called 'enfranchised' beneficiaries; and
  • those with no rights to such information - called 'disenfranchised' beneficiaries.

In the case of 'disenfranchised' beneficiaries, there must be a guardian of the foundation who has a positive duty to both the founder and the beneficiaries to enforce the constitution and purpose of the foundation. Such positions do not need to be fixed, it is possible to make a beneficiary's status of 'enfranchised' or 'disenfranchised' conditional upon an event, for example attaining a specified age. Where the constitution is silent as to a beneficiary's rights to information relating to the foundation, the beneficiary will be deemed to be 'enfranchised'.

3. A guardian is also required where there are purposes. This is akin to the role of an enforcer of a non-charitable purpose trust. Unlike Jersey's foundations law, it is optional, other than where there are disenfranchised' beneficiaries or purposes, whether or not to have a guardian. Another difference between the Guernsey law and the Jersey law in respect of guardians is that the Guernsey law will not permit the guardian to be a council member. This makes sense in terms of the role of the guardian; their purpose is to safeguard the rights of 'disenfranchised' beneficiaries and purposes from council mismanagement, as otherwise there would be no-one capable of supervising the council.

4. The possibility of having neither a council member nor guardian who is a Guernsey licensed fiduciary or "authorised person"; in which case there must be a "Resident Agent". Resident Agents must be a Guernsey licensed fiduciary or authorized person, resident in Guernsey and have rights to view such information as is necessary to ensure compliance with their fiduciary duties.

5. Finally the reservation of powers - the founder can retain the power to amend the foundation's constitution and purpose and also the power to terminate the foundation (for life, or 50 years if a corporate). They can also, in principle, be involved in the running of the foundation directly either via being a council member, guardian or power holder (a person with positive powers, for example to appoint and remove foundation officials, or consensual powers, i.e. where their consent must be sought before certain powers are exercised by the council). As with all fiduciary structures, great care needs to be taken when considering what powers/combination of powers the person creating the structure retains.

Parties to a foundation and typical structure

The diagram shows the potential parties to a typical Guernsey foundation, noting there is no one size fits all, every foundation will be specific to a particular client's requirements:

How to set up a Guernsey foundation

There are two principal stages (i) the 'creation' when the founder signs their name to the constitutional documents and endows the foundation with its initial property, and (ii) the 'establishment' when the Guernsey Foundation Registrar assigns the foundation with a registration number at which time the foundation has separate legal personality.

In respect of applying to have a Guernsey foundation 'established', only a Guernsey licensed fiduciary can make the application. To do so they must file with the Foundation Registrar: a declaration signed by the founder (or his registered agent) approving the details set out in the charter, the applicable registration fee (GBP100 for a 24 hour incorporation or GBP350 for a two hour incorporation) and other details set out in the Law such as a copy of the Charter, the names and addresses of the councillors and guardian (if any) and their written consent to take up their position. Upon receiving the required information, the Registrar will inscribe the foundation's name on the

Register, allocate a registration number and issue a certificate of registration. The certificate will state the name and registered number of the foundation, its registered office, its date of establishment and its duration (which may be unlimited), and the signed copy will be evidence of compliance with the registration requirements.

Once registered, certain information will be publicly available including the name and registered office of the foundation, the name and address of the council members and guardian (if any). Unlike some other jurisdictions, although the Registrar sees the Charter it is not made public.

Key uses

As with trusts, foundations can have multiple uses including in respect of private, charitable and corporate purposes, and can be incorporated into a variety of potential structures tailored to best suit a particular client's needs.

Private

Foundations may be particularly attractive as a simple alternative to trusts for private clients, especially those from civil law jurisdictions for whom the concept of a trust may be unfamiliar or who would like a wealth management entity which would be easily recognised by third parties in their home jurisdiction. Such a foundation can be highly flexible in respect of how long it lasts, how the founder may remain involved in the administration, how much information beneficiaries are entitled to etc. As with trusts, foundations may also be a suitable vehicle for asset protection as they divorce the ownership of the assets from the founder. Foundations can also be used as part of larger wealth management structures including acting as trustee of a trust, holding the shares of a private trust company, or acting as an umbrella entity holding various companies or assets.

Charitable

Philanthropic founders may be particularly attracted to the foundation as an alternative to the trust simply for the positive connotations - the majority of the world's largest charitable bodies have the word 'foundation' in their name notwithstanding they are not in fact 'foundations' but companies or trusts. There is also the added benefit that the foundation's purposes do not have to be exclusively charitable.

Corporate

Since foundations (unlike companies) do not have shareholders and may also be free from beneficiaries, they are an ideal 'orphan' vehicle. As such, in addition to being a suitable alternative to noncharitable purpose trusts for holding shares in a private trust company, they are also suitable for off-balance sheet structuring, subordinated debt and private equity structuring.

Where are we now and where will we be going?

On the first day it was possible to establish a Guernsey foundation, four foundations were registered with the Foundations Registry. The purposes of these foundations includes (i) wealth planning (ii) philanthrophy and (iii) for a non-charitable purpose. I believe these are the three principle uses we will see (albeit some with a twist), and possibly in a fairly even split. I have no doubt that with time more innovative uses will develop.

It is still early days and difficult to forecast with confidence the future of Guernsey foundations. Although I do not anticipate the Foundations Registry being swamped with new applications, from the enquiries and instructions I am currently working on, I do know that a number of the new Guernsey foundations will be of significant value. This is consistent with what I have said on a number of occasions; gone are the days of high volume low value fiduciary work, here are the days of high value low(er) volume work - such high value clients emanating from civil law jurisdictions including Eastern Europe, the Middle East, and Latin America and these are the clients who may well prefer a foundation structure over a trust structure.

In addition to new instructions, I am currently working on a potential migration of a foundation into Guernsey. This may be attractive for those wanting to benefit from the foundation being run from a jurisdiction with a robust financial services regime, a highly respect judiciary and a stable economic and political government and economy.

Originally published in Offshore Investment, May 2013.

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.

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