In the mid-1990s receivable trust structures became the preferred form for the issue of bonds backed by UK credit card receivables. They have also become widely used for the issuance of UK residential mortgage backed bonds.
Receivables trust structures typically have at their heart a Jersey company which acts as trustee of a trust established under English law for the purpose of holding receivables. The receivables are sold by the originator of the receivables to the trustee. The funds to acquire the receivables are provided to the trustee by a special purpose funding vehicle, usually incorporated in England. The trustee holds the receivables on trust for the originator and funding vehicle, as beneficiaries.
Receivables trust structures (sometimes described as Master Trust Structures) provide a flexible means for successive portfolios of receivables to be transferred to the same Jersey entity acting as trustee with the respective interests of the funding vehicle(s) and the originator being readily varied by reference to their interests under the receivables trust.
This briefing contains a summary of the regulatory and tax treatment of a Jersey company acting as a receivables trustee.
Acting As A Trustee
Acting as a trustee in Jersey (or a Jersey person acting as trustee anywhere in the world) is an activity that is regulated in Jersey. A person acting as a trustee must be registered under the Financial Services (Jersey) Law 1998 (the "Financial Services Law") unless they are exempt from the requirement to register.
A Jersey company acting as trustee in a receivables trust structure will satisfy the conditions for exemption from the requirement to register under the Financial Services Law provided that its sole or principal activity is to participate in a scheme that involves any one of the following: (a) the making of a loan, the giving of a guarantee, or entry into a derivatives transaction; (b) the issuing of securities; (c) the securitisation, acquisition or repackaging of assets; (d) a capital markets transaction; or (e) any transaction connected with the foregoing.
The Jersey company acting as trustee in most receivables trust structures will satisfy these criteria and will be exempt from the requirement to register as a person carrying on trustee business under the Financial Services Law.
Money Laundering And Proceeds Of Crime
A person carrying on trusteeship business, including as a special purpose vehicle, must comply with money laundering and proceeds of crime legislation in Jersey. If, however, the person carrying on trusteeship business is administered by a registered trust company business, the requirements of the legislation do not apply to that trustee and there is no requirement to register for these purposes with the regulator. It would be unusual for the corporate administrator of a receivables trustee not to be a registered trust company business.
Raising Money In Jersey
Receivables trusts constitute unit trusts for the purposes of the very wide definition of "unit trust schemes" under Jersey law and the creation of the interests under the trust, of the originator and of the funding vehicle(s) constitutes the issue of units (a term that is also very widely defined).
If a unit trust scheme is governed by the law of Jersey or the units issued pursuant to it are registered in Jersey, consent may be required from the Jersey Financial Services Commission for the issue of the units.
It is unusual for a master trust constituted for the purposes of a receivables securitisation to be governed by Jersey law; the receivables trust is usually governed by English law even though the trustee is a Jersey company. The meaning given to the terms "register" and "registered" for the purposes of COBO is, however, wide and if there is any record of the identity of the beneficiaries of the trust in Jersey, it may bring the scheme within the terms of this provision so that a consent is required.
Consent is also required from the Jersey Financial Services Commission if money is raised in Jersey by the issue of any units.
A person is deemed to raise money in Jersey only if the money is made available in Jersey. There has been no judicial interpretation of the meaning of the phrase "money is made available in Jersey" but it has been indicated in the past by the relevant regulator that, whilst the question is a matter for the courts, it would take the view, subject to what the courts may say, that money would be considered to be made available in Jersey if it were paid into a bank account in Jersey, or if a person in Jersey were to be named as the addressee to which remittances can be sent even if they are then transmitted on to accounts elsewhere, or if a person in Jersey has control over those remittances even if they are not sent initially or subsequently to Jersey.
For the purposes of determining whether the units are registered in Jersey or money is made available in Jersey, consideration needs to be given to where the trust is administered and where it keeps its records.
If required, consent is obtained from the Jersey Financial Services Commission. It would be unusual for the process of obtaining consent to affect the transaction timetable. No fees are payable to the Jersey Financial Services Commission for the issue of consents.
The Data Protection (Jersey) Law 2005 (the "Data Protection Law") follows, in many respects, the UK's Data Protection Act 1998, but there are some differences to reflect local considerations.
Generally speaking, the Data Protection Law requires Jersey incorporated companies which obtain, record or hold information relating to living individuals to file a notification with the Data Protection Commissioner in Jersey. A Jersey incorporated trustee of assets comprising credit card receivables or residential mortgages would therefore be required to file a notification, unless its activities are limited so that one of the exemptions to the notification requirement applies. Whether notification is required or not, the receivables trustee will still have to comply with the terms of the Data Protection Law in relation to its use and processing of personal data.
If required, the notification process (which can be completed online) involves filing certain particulars with the Data Protection Commissioner which include information relating to the processing of the data and the purpose of the processing. The notification must be renewed annually and updated whenever the notified particulars change. There is an annual notification charge of £50.
Whether or not the trust is governed by Jersey law, as a matter of Jersey law, the interest of a trustee in the property of a trust is limited to what is necessary for the proper performance of the trust and it is deemed that the trust property does not form part of the assets of the trustee except to the extent that the trustee is also a beneficiary of the trust.
Typically, a receivables trustee would not be a beneficiary of the receivables trust. Therefore, if the trustee itself were to become insolvent or action were to be taken against its property, its creditors would have no right or claim to the trust property of the receivables trust unless and to the extent that the trustee had claims against the property of the trust in respect, for example, of expenses, costs and liabilities.
Where the receivables trustee is a Jersey company, as is usually the case, it can be tax neutral: liable to zero per cent tax on income and not liable to make any withholding on distributions it may make, nor liable to tax on any capital gains in respect of the trust property. Additionally, no stamp duty will be payable in Jersey on the creation or issue of the units, nor on any transfer of the property by the trustee or to it (provided that it is not immovable property situate in Jersey).
Notwithstanding that it is incorporated in Jersey, the trustee may be treated as not resident in Jersey for tax purposes if the business is centrally managed and controlled outside Jersey in a country, or territory, where the highest rate at which any company may be charged to tax on any part of its income is at least 20 per cent.
The trustee may also qualify as an international services entity and be exempt from the requirement to register as a taxable person for the purposes of goods and sales tax, or to charge goods and services tax in Jersey in respect of any supply made by it or in respect of any supply made to it.
Mourant provides legal and administration services to receivable trust structures including:
- Jersey legal and regulatory advice;
- Jersey company formations;
- Registered office services in Jersey and the United Kingdom; and
- Company secretarial and other corporate administration services in Jersey and the United Kingdom.
In addition, legal and regulatory advice can be given in Guernsey and Cayman, and administration services can also be provided in Guernsey, Cayman, New York, San Francisco, Dubai, Singapore, Hong Kong, Luxembourg and Dublin.
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.