Foundations in Jersey

Jersey was one of the first jurisdictions to develop modern legislation in the areas of banking, funds and trusts, and it has proved time and again its ability to develop new products and services to meet international demand.

Building on the excellent position Jersey has due to its internationally respected trust legislation, it is now considering the introduction of foundations. The Development Committee of the States of Jersey has recently presented a Consultation Paper¹ regarding the planned introduction of a new law regarding foundations. Foundations will be a new legal concept for Jersey, and the paper sets out a general approach that has been formulated by a steering group.

The main principles set out in the paper are that a new law on foundations should provide as much flexibility to practitioners as possible, and that all aspects of the regime applicable to foundations must accord with international anti-money laundering standards.

The consultation period regarding the proposed law ended in February 2005, however, there is still some debate between industry and the Jersey Financial Services Commission over certain matters such as the role of trust company businesses in administering foundations. Consequently, no instructions have yet gone to the Law Draftman's Office. It is anticipated that such instructions will be issued in the 3rd or 4th quarter of 2006 with a view to introducing the new law early in 2007.

There is no doubt a demand for private interest foundations, particularly from clients in civil law jurisdictions who may not feel comfortable with the concept of trusts. However, it remains to be seen whether Jersey (and indeed other common-law jurisdictions) will be able to effectively compete with civil-law jurisdictions such as Liechtenstein, Panama or the Netherlands Antilles, which already cater to that market and where the concept of a foundation is "native" to their legal systems. If Jersey can compete, then most likely on the basis of its excellent reputation as a sophisticated financial services jurisdiction. The Consultation Paper accordingly states that "...The Jersey model must be robust, delivering clarity to the client, certainty to the structure and proper protection to the reputation of the Island. Perhaps the key issue upon which responses are sought is whether Jersey should seek to follow the model for private foundations that has been established in the Caribbean, or whether, given the depth and experience of the financial services industry in Jersey, a different model is appropriate. The manner in which Jersey foundations should be structured depends in part on the resolution of that issue."


Proposed Structure of Jersey Foundations

A Jersey Foundation will be a legal entity registered with the Registrar of Companies. It will be governed by its Constitution, a Charter, and a set of Rules where these are adopted. All Foundations will have a Charter: this is a public document that must include certain specified details. The detailed provisions applicable to the Foundation can be included in the public Charter or the Rules. The latter will constitute a private document. Most Foundations are expected to have both a publicly registered Charter and a set of private Rules. However, in some cases it may be desirable for the entire Constitution of the Foundation to be public. One example would be Foundations established entirely for charitable purposes. A Foundation will be required to have a Council responsible for fulfilling its aims in accordance with the Constitution as well as a Registered Office in Jersey. The latter may be provided only by a financial services business regulated by the Jersey Financial Services Commission. A Foundation may also have a protector. Under the proposed Jersey terminology he/she would be called an Advisor whose role will be set out in the Constitution. Assets are given to the Foundation by one or more Founders and are distributed to Beneficiaries. Any person or entity can be a Founder or a Beneficiary. A Foundation can be created by a will with a view to being constituted upon the Founder's death.

A Foundation will come into existence as a separate legal entity on the date of its entry in the Register of Foundations by the Registrar and will cease to exist when it is removed from the Register. The law shall impose no perpetuity period upon Jersey Foundations. However, the Constitution may provide for the Foundation to cease upon the occurrence of a specific event or the expiry of a fixed period of time. Any changes to the Charter will have to be placed on the Register. The only documents that will be available to the public are the Charter, together with any subsequent amendments to it, and the certificate of registration of the Foundation.


Confidentiality

All information relating to a Foundation will be confidential except for that available on the public file. Confidentiality should not be stipulated by law: the normal levels of client confidentiality should apply. These are in any event likely to be set out in any contract entered into concerning the Foundation. It is essential that nothing in the law prevents or could be interpreted as preventing any party having a full and forthright relationship with the Commission.


Forced Heirship and the Validity of Dispositions into a Foundation

The law shall confirm that no rule relating to inheritance in another jurisdiction can affect the validity of any disposition of assets into the Foundation or the operation of the Foundation. The Trusts Law already includes similar wording and will be subject to further review during the relevant forthcoming consultation. It makes sense to ensure that both laws adopt a similar approach (as regards their substance and drafting) to this issue. It should also be noted that if no assets have been placed in a Foundation prior to the Founder's death, they are likely to be treated as part of the latter's estate. So a foundation created by a will is likely to be subject to any heirship rights that may be enforced against the Founder's estate. The disposition of assets into a Foundation may be challenged under the general law of Jersey on various grounds, for instance if it was made with fraudulent intent or the Founder's title to the assets is disputed.


Powers of the Royal Court

If the Council wishes to vary or amend the Constitution of a Foundation, it may apply to the Royal Court for this purpose or whenever the guidance of the Court is necessary. This would be the case where the Constitution is unworkable, unclear, contains manifest errors, no longer achieves the purpose for which it was established or could, in the Council's estimation, be usefully amended. However, most Foundations are likely to include an explicit provision allowing the Constitution to be amended. The Founder, any Beneficiary, the Attorney General, the Commission, the Registered Agent, any Advisor, or, with the consent of the Court, any other person, could also apply to the Royal Court to make any order in respect of the Foundation that the Court thinks fit. Article 47 of the Trusts Law could provide a model in this regard. In particular, it should be ensured that Founders and Beneficiaries have access to the Royal Court in order to render the Council duly accountable.

¹Foundations: Proposals for a new law. A Public Consultation, States of Jersey, 25 November 2004.