17 December 2008

Revision Of Law On Foundations – Main Contents Of The Government Bill Report And Application No. 13/2008

On 19 February 2008 the Report and Application by the Government concerning the total revision of the law on foundations was approved by the Government and adopted by the Parliament of the Principality of Liechtenstein.
Liechtenstein Wealth Management
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On 19 February 2008 the Report and Application by the Government concerning the total revision of the law on foundations was approved by the Government and adopted by the Parliament of the Principality of Liechtenstein. The first reading of the bill was in the Parliament from 12 to 14 March 2008. Some amendments can still be expected. The probable enactment may be as at 1 April 2009.

The following provisions are to be stressed as main contents of the Government bill:

I. New systematic concept

In systematic terms, a characteristic feature of the bill is that the new law on foundations presents itself as a self-contained body of legal provisions, which dispenses with the reference to the Law concerning Trust Enterprises (TrUG), previously embodied in Art. 552, para. 4 of the Persons and Companies Act (PGR), and lays down the relevant provisions relating to the law on foundations directly in the substantive law on foundations. Nevertheless, following the tradition of the PGR, the law on foundations remains embedded in the PGR, although it is now classified in paragraphs (Art. 552 §§ 1 – 41 PGR).

The general provisions of the PGR thus in principle also continue to be applicable to foundations; an overloading of the substantive law on foundations through the embodiment of relevant provisions of the General Section in Art. 552 §§ 1 ff. is avoided.

II. Increasing the responsibility of the founder

Great importance was already attached to the responsibility of the founder in Liechtenstein. This responsibility is further reinforced by numerous new provisions in the bill and existing legal uncertainties, particularly in connection with questions concerning the formation of foundations on a trust basis, sufficient certainty of the purpose of the foundation or the legal quality of the founder's rights, are removed through clear provisions.

The formation of foundations on a trust basis, the reliability of which is undisputed, is newly organised with the help of an express legal provision. The bill uses the representation provisions, although it endows cases of indirect representation by virtue of the law with the legal effects of direct representation. It is thereby made clear that all rights accrue directly to the economic settlor and that the latter alone is to be treated as the founder (§ 4, para. 3). The founder's rights themselves are not assignable and not inheritable (§ 30, para. 1), and beyond this can only be reserved if the founder is a natural person (§ 30, para. 2). Pursuant to § 36, para. 2, enforcement should not be able to be carried out in respect of a right of revocation or right to require a change.

Through a detailed provision concerning the necessary or permissible foundation documents for the formation of a foundation and the thereby related clear allocation of competencies for the respective contents, legal certainty is also reinforced with regard to the question of which contents of the foundation formation transaction must originate from the founder himself and provisions on what contents can be reserved to or assigned to other executive bodies, in particular to the foundation council (§§ 16 – 18).

III. New organisation of the deposits of private use foundations

Private use foundations continue to achieve legal personality on an effective declaration of the foundation; an entry in the Public Register can be made voluntarily, but is of a purely declaratory nature. However, the model of depositing is changed in that it is no longer – as according to the current legal situation – the foundation deed, but henceforth a notification of formation to the Office of Land and Public Registration which is to be deposited. An Attorney at Law licensed in Liechtenstein, trustee or entitlement holder pursuant to Art. 180a shall monitor the notification of formation and confirm the accuracy of the notification with all its contents pursuant to § 20, para. 2 (penal provisions pursuant to § 66c SchIT).

The foundation supervisory authority (see also the comments under section 5) consequently is also given authority to monitor, on a random sample basis and at its dutiful discretion, the substantive accuracy of the notification of formation and also possible notifications of changes, which are to be deposited according to the same model at the Office of Land and Public Registration (§ 21).

IV. Provisions concerning the rights of the beneficiaries to disclosure and information

The bill provides comprehensive and detailed provisions concerning the rights of the beneficiaries to disclosure and information, which is enabled by monitoring within the foundation by the beneficiaries of the foundation themselves. The submitted model of Foundation Governance presents itself as modern and flexible at the same time, in that it permits the founder to leave monitoring either in the hands of the beneficiaries or to shift its emphasis to other executive bodies of the foundation. The concept is based on the principle that the beneficiaries have comprehensive rights to information and disclosure, which are limited through the restriction to the right of the beneficiary ("insofar as it affects his rights") and through a bar on abuse (§ 9, paras. 1 and 2).

If the founder has reserved for himself the right of revocation and is at the same time the ultimate beneficiary, the rights should accrue solely to the founder (§ 10). In the case of those foundations which are under the supervision of the foundation supervisory authority, the beneficiaries themselves should likewise be accorded no right to disclosure and information because in these cases constant monitoring is already undertaken by the foundation supervisory authority (§ 12). § 11 then provides that the founder can restrict the rights of the beneficiaries to information and disclosure to an indefeasible core area if he sets up an executive monitoring body. Pursuant to § 11, para. 2, an executive monitoring body can be an auditor (§ 27), a professionally qualified person as a person trusted by the founder or the founder himself. With regard to the requirement of independence, § 27, para. 2 applies mutatis mutandis.

V. New organisation of foundation supervision

The area of public supervision of foundations is newly organised on the basis of the general systematic subdivision into private use and non-profit-making foundations. To undertake the relevant tasks, a new central foundation supervisory authority, based at the Office of Land and Public Registration, is to be created. Essentially, the nonprofit-making foundations – whereby a newly created definition of a concept of nonprofit-making under private law in the general section of the PGR is taken as a basis (Art. 107, para. 4a) – are under the supervision of the foundation supervisory authority.

The foundations under supervision are subject to a statutory auditing obligation (§ 27). On the basis of reports by the auditors to be submitted to it annually, the supervisory authority decides on the necessity of measures to be taken by the supervisory authority; however, contrary to the current legal situation, it cannot order these measures itself, but shall make application for these to the judge by way of noncontentious proceedings (Rechtsfürsorgeverfahren) (§ 29). The foundation supervisory authority is accorded party status in the case of supervisory proceedings initiated by the judge on the application of other participants in the foundation.

VI. Transitional provisions

The transitional provisions essentially address the question of to what extent the new law also applies to existing foundations. Here emphasis can be placed upon the principle of "New law for new foundations". Deviating from this principle, those provisions concerning Foundation Governance, the new model of depositing by means of notification of formation, and concerning foundation supervision, should also apply to existing foundations, in order that these foundations can also smoothly be incorporated into the new supervisory system.

In addition, the transitional provisions explain how those foundations are to be treated which do not comprehensively comply with the requirements of the current legislation on the description of the purpose of the foundation.

This article is a translation from the German publication of the Justice Department of the Government of Liechtenstein regarding the report and application No. 13/2008 of the government bill to the Parliament. The translation was prepared by a member of the trustee association of Liechtenstein and left at free disposal of its associate members.

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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