Saturday, 28 July 2012

Asset Protection In Dubai UAE

In many instances it is absolutely key to the establishment of a joint venture that the assets of the joint venture clearly be out of the reach of litigants. The UAE is not a jurisdiction that permits the creation of asset protection trusts or other forms of liability insulation for a joint venture where either the charter or the business is based in the UAE. Therefore, the team of legal advisors (including local UAE legal consultants in conjunction with the foreign legal advisors to the joint venture project or business), must give careful consideration to structuring the overall joint venture group of companies in such a way as to minimize un-necessary asset exposure in the UAE. One such approach would be to seek the assistance of an offshore legal counsel who could advise and assist in the creation of a “purpose trust”. Such special purpose trusts are useful in terms of corporate structuring for specific purposes such as joint venture operations. Several offshore jurisdictions have legislation in place that recognizes the concept of placing assets under the control of a trustee for a specified purpose. In other words, a trust created for a purpose as opposed to a trust with named or ascertainable beneficiaries. A legitimate purpose of a “purpose trust” can include the acquistion, holding and/or lease of specific equipment to a company carrying on business in Dubai (such as expensive manufacturing equipment and machinery; aircraft; ships; etc.). The purpose trust would be created for the “purpose” of owning and/or leasing these specific assets for the duration of the life of the joint venture project. Upon completion of that particular project, the assets of the trust would be distributed to a class of onshore corporate entities or entity. A purpose trust in most hosting jurisdictions must meet a number of general guidelines some of which generally include but are not limited to:

* the term of the trust must generally not exceed 100 years

* the purpose or purposes may be charitable or non-charitable

* he purpose or purposes must be specific, possible and reasonable

* the purpose or purposes must not be immoral, contrary to public policy or unlawful (as determined by the laws of the host jurisdiction)

Another element of a purpose trust to be satisfied includes the appointment of a trustee or trustees to administer the purpose trust. Many jurisdictions also provide that the trust instrument creating the purpose trust must also appoint an "enforcer" or a person who's task it is to ensure the trust's provisions are carried out by the trustee. The trust instrument must also specify the specific event that will trigger the termination of the trust and thus the disposition of the assets of the trust upon its termination.

It is therefore possible for participants in a joint venture to convey their respective asset contributions to be used in the joint venture operation into an offshore purpose trust as opposed to a contribution directly to the joint venture entity thereby exposing those assets to liability in the UAE. The assets of the trust would be under the direction and control of the Trustee but at all times subject to the trust instrument and the “enforcer” of the trust would ensure the Trustee follows the directions set out in the trust instrument. At the point in time that the joint venture participants vote for a termination of the joint venture operation, or by virtue of a pre-determined termination date set out in the joint venture agreement, the trust would be terminated and the assets of the trust distributed as provided for in the trust instrument. The conveyance of trust assets could provide for a conveyance to the joint venture company which would then be liquidated or distributed as provided for in the joint venture agreement; or in the alternative it could provide for a conveyance of the assets of the trust back to the original contributor of the asset.

The purpose of the trust would be to enter into an agreement with the newly established joint venture company pursuant to which the trust's assets would be leased to the joint venture operation upon terms and conditions n1ulually agreeable lo the Trustee and the board of directors of Lhe joinl venture cmnpany. The enforcer of the trust would in this situation in all likelihood he the President or Chairman of the Roard of lhe joinl venlure cornpany.

The above is sitnply one of rnany possible structures involving the use of a purpose trust in a joint venture structure to ensure that valuable assets of the joint venture participants are isolated frm11 litigation arising fron1 the joint venture adivity Laking place within lhe UAE. The incretnental cost of pulling a purpose lrust in place and maintenance of the purpose trust during its existence is relatively norninal and is generally viewed as an inexpensive insurance policy covering the contingency of exproprialion of assets through litigation or credit failure of the joint venture entity or misrnanagement of the LJAF joint venture.

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1 comment:

  1. It is really important that you are being aware of what is going on in your company. Ignorance will not help you in the end.


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