The "A" Employee Shares Trust (the "Trust")
was established under English law on 21 March 2000 as an employee
benefit trust. The Trust was administered in Jersey by Equity Trust
(Jersey) Limited as trustee (the "Trustee"). Shares in
the founder of the Trust the ("Founder") were contributed
as Trust assets.
The Founder did not have any employees. However it had a trading
subsidiary (the "Subsidiary") which did and shortly after
the creation of the Trust, the Subsidiary merged with an American
company (the "American Company") the majority of whose
shares were held in the Trust. As a result of the merger, the
Subsidiary ceased to be a subsidiary of the Founder and became a
subsidiary of the American Company. In or around May 2000
therefore, the position was that the Founder had no employees and
ceased to have a subsidiary with employees.
In 2003, shares in the American Company were sold and out of the
proceeds received into the Trust, five sub trusts were created for
families of the principals behind the Founder and persons who were
employees of the original Subsidiary.
In 2007, as a result of an attempt to freeze assets in the Trust
as part of English divorce proceedings, the Trustee sought advice
and concerns arose that the Trust may not have had ascertainable
beneficiaries from early on. The Trustee obtained further advice
from an English QC and in his opinion whilst the Trust was
initially valid, it subsequently failed for want of beneficiaries
in or around May 2000, as a result of the fact that at that time
the Founder had no employees and ceased to have a subsidiary with
employees. Counsel's opinion was that there was a resulting
trust in favour of each of the donors to the Trust and therefore
the subsequent declarations purportedly creating sub trusts were
The beneficial class of the Trust was defined as follows:-
"The present, past and future employees from time to time
of the Founder and its subsidiaries..."
One of the main issues was how the definition of the
"Beneficiaries" should be interpreted, in particular the
reference to "the Founder and its subsidiaries". It was
argued that whilst the Founder was likely to have intended that
employees of its future subsidiaries should be included within the
beneficial class, it seemed unlikely that it intended employees of
former subsidiaries to also be beneficiaries. It was therefore
contended that once a subsidiary ceases to be a subsidiary of a
particular company, its past present and future employees probably
fell outside the definition of the beneficial class.
It was noted that the definition of "Beneficiaries"
included reference to "future employees". However, it was
contended that for a trust to exist, there must be a beneficiary
with locus standi to have the trust enforced at all times. On the
facts, there was currently no such beneficiary nor had there not
been for some time. The fact there may be such a person in the
future, was insufficient.
Counsel was also of the opinion that based on the trust deed,
there was no intention on the part of the Founder or any other
person who contributed assets to the Trust, that they had abandoned
their beneficial interest in such property, even if the Trust
failed. Indeed it was noted that the terms of the Trust
specifically envisaged resulting trusts being created in certain
In light of the above, Counsel concluded that the Trustee had
been holding the assets on resulting trusts for the donors to the
Trust since around May 2000. Further, as the sub trusts had been
created subsequent to May 2000, they were invalid, since the
Trustee had no power to make such appointments, as the appointments
had not been made at the direction of the persons for whom the
Trustee held the assets on resulting trust.
Applying English law, the Court held that the Trust had failed
for want of beneficiaries in or around May 2000 and that the sub
trusts declared subsequently had at all times been invalid.
The assets of the Trust and the sub trusts were ordered to be
held to order of the Court pending determination of how those
assets should be divided as between the donors thereof and any
claims which the beneficiaries of the resulting trusts may have
against the assets.
This case is notable because it concerns an employee benefit
trust and judgments in respect of such cases in offshore
jurisdictions are rare. As regards the legal principles, the case
affirms the absolutely fundamental requirements that there be
ascertainable beneficiaries of a trust at all times.
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Many people are baffled by trusts, the purpose of which they don't fully comprehend. Some even regard them with suspicion, as tools of of opaque tax evasion strategies of a type favoured by wealthy individuals.
We were recently instructed by a Bank in relation to a regulatory matter. The Bank had made a suspicious activity report to the Financial Investigation Unit ("FIU") due to their concerns about the potential source of funds in an account.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).