How Are Offshore Vehicles Being Used?
Ogier assisted in the process of enabling the first Jersey company to list on the Hong Kong stock exchange. Furthermore, Hong Kong based Partner Nathan Powell acted on the Hong Kong Stock Exchange listing of Glencore (using a Jersey listing vehicle) which was the largest IPO in the world in 2011. Another Hong Kong based partner, Marcus Leese, advises regularly on the acquisition of aircraft by ultra high net worth individuals using offshore companies (typically BVI or Cayman) for the acquisition of vehicles. Undoubtedly we are seeing an increased appetite for offshore vehicle use for pre IPO entities to list offshore. Jersey vehicles in particular are used for London listings. It is our experience in the current market, with China growing economy, that RMB funds seem to gain more attention compared with US$ funds and as such, clients are now more prepared to structure such funds using offshore vehicles.
Furthermore, we have discovered that the Chinese have experience using offshore services for a number of years, as they have used offshore vehicles to pool their private equity investments with their friends and/or business associates. As a result, litigations (for instance shareholder type disputes) have become more frequent in offshore courts, such as the BVI in particular.
Finally, in terms of our Chinese experience, we are noticing a very much greater awareness among high net worth clients of the possibilities and advantages of establishing some form of offshore trust or fiduciary structure. Why is this the case? It seems to us that even though the Chinese wealthy are on the whole younger than the wealthy in other parts of the world (and hence do not see the immediate need to worry about structuring), they are beginning to see how settling a business into trust can assist in preventing fragmentation and can have the effect of transferring the wealth from one generation to the next. Another possible, and indeed surprising factor, is that since 2001 China has had its own trust law which means Chinese clients have a familiarity with the concept which, for instance, most Europeans do not.
China's Trust Law
China's trust law was introduced in 2001. The underlying principle behind the trust under Chinese law is based upon the settlor entrusting his or her property rights to the trustee who, according to the will of the settlor, will administer or dispose of such property in the interest of a beneficiary or intended purpose. The requirement that trusts must be in writing means that Chinese trust law is inextricably connected to contract law. This, combined with the prominence of the settlor, has the effect of creating a tripartite trust relationship.
As with the other Asian civil law countries that have embraced the trust, the settlor continues to enjoy a number of rights after the creation of the trust. The settlor enjoys the right of access to information about the administration of the trust, including its income and expenses, as well as the right to request explanations of the trustee's activities.
Especially noteworthy is the provision that if there are special reasons, the settlor may ask the trustee to modify the methods for administering the trust property if the existing methods are not favourable to the purpose of the trust or the beneficiaries.
The trustee is required to abide by the provisions in the trust documents and handle trust business in the best interests of the beneficiaries. He must be careful in performing his duties and must fulfill his obligations with honesty, good faith, prudence and efficiency.
The positions of the beneficiary under Chinese trust law is coloured by the rights enjoyed by the settlor. Indeed, the legislation provides that a beneficiary may exercise the rights that the settlor enjoys. If while exercising those rights a beneficiary holds views differing from those of the settlor, he may apply to the People's Court for a decision.
The contractual nature of trust law in China shapes the relationships of the various parties to the trust. Whilst, in a broad sense, the trustee and the beneficiary enjoy similar rights as under the common law, the role of the settlor is quite different. The settlor enjoys all of the rights of the beneficiary, and in light of the settlor's power to remove the trustee if he is guilty of gross negligence, it may be argued that the settlor is the most powerful party to the trust. This is in stark contrast to the position adopted in common law jurisdictions.
Conclusion
As with the Ogier experience in Hong Kong, there is certainly an appetite for offshore products and for trusts in particular. We are beginning to see the fruit of our labours and are excited at the prospect of developing our links into China further. With the growing demand for offshore legal services in China, Ogier Shanghai office will leverage its first mover advantage and being where our clients need us to be.
