Many Middle Eastern families face the pressure of transiting
their businesses to the next generation, but all too often family
leaders defer the transition, for a multiple of reasons, for as
long as possible. Consequently, succession planning in the region
is a highly sensitive and very emotional issue to tackle.
WHAT ARE THE REASONS FOR FAMILY BUSINESSES NOT BEING
Many Middle Eastern businesses are still in the first generation
so there is a lack of a track-record of best practice succession
planning. This lack of track-record is not helped by some family
feuds, over billions of dollars, being played out in the regional
courts. Consequently, other families witnessing such feuds become
sensitive about avoiding their own family hostilities and delay
Furthermore, we cannot overlook the obvious; that many families
are traditional and either will seek to pass the family business to
the eldest son or permit Sharia law principles to take effect.
However, these obvious approaches are not always successful for the
business which can result in its ultimate failure by the next
generation: the eldest son might not be well suited to the business
or the ownership structure, divided in accordance with Sharia
principals, causes disarray to the business.
As Western advisers, we should be acutely aware that few Middle
Eastern families will bring in competent outsiders to lead or
manage a family business or indeed resolve issues around
succession. We need to appreciate, understand and respect the
regional culture, in particular that the family bloodline is of
primary importance, and take the time to truly understand the
For those Middle Eastern families who are willing to look at
their succession planning, how can we assist them, particularly in
light of Sharia principals? Typically, there are three options
1. strict adherence to Sharia principals, together with Scholar
approval, where the trust or foundation documents reflect the
investment policies, dissemination of assets and charitable giving
of the settlor's or founder's school. However, such strict
adherence is often the exception to the rule because families are
looking for more flexibility in their succession planning.
Therefore, it is more usual to see a discretionary trust or
foundation, together with wishes from the settlor or founder which
2. allows the trustee or council to follow Sharia principals
when making investments or distributions, but permits adaptability
away from Sharia principals depending on the families' changing
circumstances. Typically, this is the middle ground; or
3. a complete departure from Sharia principals to allow absolute
flexibility and where certain property is effectively ring-fenced
entirely outside of the Islamic world. This is usually undertaken
for specific reasons: for example, the education of both sons and
daughters at Western Universities or to ensure an equal
distribution of wealth across the next generation.
ANTI-FORCED HEIRSHIP MEASURES: SO CALLED "FIREWALL
Article 9 of the Trusts (Jersey) Law 1984 and section 14 of the
Trusts (Guernsey) Law, 2007 both provide protective provisions
against attacks by foreign law (including Sharia) over assets held
in Jersey or Guernsey structures. For instance, any question over
the validity or disposition of property into trust will be
determined solely by Jersey or Guernsey law regardless of any
interests conferred by a foreign law or heirship rights. These
legislative "firewall" provisions have been stress-tested
in both the Jersey and Guernsey courts1 and found
Equally robust firewall provisions are contained in article 32
of the Foundations (Jersey) Law 2009 and section 37 of the
Foundations (Guernsey) Law, 2012. These provisions are likely to be
equally as effective as their trust law counterparts.
Unique challenges, issues of culture, personality and
hierarchical structures can make succession planning for Middle
Eastern families complicated. There is no one size fits all
approach and every family is different. However, it is important to
understand the sheikh's attitude to cultural and Sharia
compliance, and the family dynamic, in order to properly guide the
If done successfully, succession
planning can develop a long-term multi-generational vision for the
family business, ensuring its continuity and the family's name
and reputation, but also promote family harmony and avoid conflict
between family members.
1 See Tait-v-Apex Trustees Limited JRC 148 and
Seggins v Apex Trust Company Limited  JRC077 in Jersey and
Rothschild Trust Guernsey Limited and Adamantios (Diamantis)
Pateras & Katigko-Kalliopi (2011) in Guersney.
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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