As a result of their nature as highly malleable and flexible instruments, trusts, have been and are still being employed for a myriad of uses, the limit thereto being set only by the imagination and inventiveness of practitioners in the field, which uses can very broadly be categorized into two classes: private uses and uses of a commercial nature. Private trusts, as their name implies, cater for the needs of individuals and are oftenmost sought and employed in a domestic scenario with individuals employing such trusts to provide for situations involving family members via inter vivos settlements or causa mortis dispositions that meet their needs based on the situation of the family de quo. On the other hand, commercial trusts offer practitioners in the commercial world an infinite variety of tools that can be drawn up in particular contexts and provide commercially expedient results thereby rendering the use of trusts in the context highly functional and beneficial, as will be indicated hereunder by reference to the employment of trusts in the field of securities.
Maltese trust legislation does not permit the setting up of purpose trusts save in the case of charitable trusts, with the corollary that trusts that are set up for commercial purposes are trusts in the interests of beneficiaries that must be identified therein (the mode of determination varying depending on whether the trust is fixed or discretionary). By way of example, if one were to consider security trusts, which are a very diffuse form of trusts providing the benefits of syndication and streamlining the interests of a plurality of creditors, with the resulting enhanced administrative workability of the structure, the beneficiaries thereof are the creditors, whereas the debtor/settlor would have settled the assets in favour of the security trustee in security of their legitimate creditorial interest.
Maltese trust law enumerates indicatively the instances whereby a commercial trust can be set up, these being the following, as well as ancillary transactions linked to these:
- Securities offerings, whether to the public or for public
placement, portfolio management and custody of investment
instruments;
- The securitization of assets;
- The grant of real or personal security interests including
hypothecs, mortgages, privileges, pledges and guarantees;
- Collective investment schemes;
- Employee benefit or retirement schemes or arrangements;
- Syndicated loan agreements and other multi-creditor banking
facilities;
- Insurance policies and the payment of proceeds
thereunder;
- Timeshare and multi-property structures,
as well as such other commercial transactions that may be prescribed by the Minister from time to time. It is understood that the category of commercial situations whereby trusts can be made use of is not a closed category, but rather, it is highly dynamic in line with the needs dictated by the ever-changing commercial world.
The list of transactions above is indicative of a broad array of situations whereby trusts can be interposed in order to improve the workings of the transaction at hand as well as offering better-suited mechanisms to protect the interests of all stakeholders, the trust mechanism adding value to the commercial arrangement in place.
Maltese trust legislation also provides for trusts operating in a commercial scenario to be regulated somewhat differently from other trusts insofar as these nuances are intended to cater for the ad hoc nature of commercial transactions. In a commercial trust scenario, 'the express terms of the trust instrument' define the operation and workings of the trust arrangement, as well as the duties and liabilities of the trustee, in derogation to the provisions of the Trusts and Trustees Act, thus allowing the parties in the commercial trust to objectively provide for the contingencies ensuring certainty in the operation of the trust which is of imperative importance in the commercial field for the players therein.
Via the employment of trusts in commercial transactions it is possible to devise arrangements allowing parties to emulate the limitations inherent in certain institutes thus taking advantage of the mode of operation of the trust mechanism. By way of example, under Maltese law it is possible to employ security trusts in order to provide a hypothec as security for a future debt, which would not otherwise be possible in the context of an ordinary hypothec in terms of traditional civil law provisions.
The resulting situation is that under Maltese law, one can employ tools that are the fruit of a highly developed traditional civil law system, whilst also benefitting from the flexibility that results when trusts are espoused to traditional institutes, thereby leading to a resulting richer legal and commercial milieu ultimately benefitting the participants in commercial transactions.
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.
