Friday, 8 November 2013

BVI Case Studies Notes, October 2013

Below is a summary of recent cases out of the British Virgin Islands (BVI) Commercial Court, compiled by Harneys' Litigation team.

Ruling on the use and status of ancillary relief proceedings and forum non conveniens issues.

 VTB Capital plc v Nutritek International Corp and ors BVIHC (Com) 103 of 2011, 18 September 2013

 Following the dismissal of the English proceedings in the VTB v Nutritek litigation by the Supreme Court earlier this year on forum non conveniens grounds, the BVI Commercial Court has refused to lift a stay of the related BVI proceedings and has held that the BVI is not, in any event, the appropriate forum for the claim.

 The BVI proceedings had initially been issued predominantly for the purpose of obtaining injunctive relief in support of the English proceedings, following the procedure commonly used prior to the Black Swan decision Following that procedure, the BVI proceedings were issued in the form of a substantive claim but were immediately stayed in favour of the English proceedings.  Bannister J described such ancillary relief proceedings as a device which "should not be used in future in cases where orders are sought in aid of foreign proceedings.  It has no secure legal foundation and is calculated only to cause confusion". It was therefore not appropriate for such proceedings to be converted into substantive proceedings after the foreign proceedings had been dismissed.
 Bannister J then ruled on a hypothetical jurisdictional challenge brought by the non-BVI defendants on forum non conveniens grounds.  After considering the circumstances of the case, the Judge found that Russia, and not the BVI, was clearly the most appropriate forum for the claim.  A major issue that followed from that was whether Russia was an "available" forum - Bannister J held that it was, despite some evidence that the Claimant may not be able to bring fraud claims there on technical grounds due to the interplay between the Russian Civil and Criminal Codes.  However, most significantly for the purposes of BVI jurisprudence, Bannister J held that the mere fact that two out of the five parties were incorporated in the BVI was not sufficient to make the BVI the most appropriate forum, ruling that the existence of BVI companies as defendants to an action should only lead to a presumption that the BVI was the most appropriate forum where the proceedings related to the ownership or control, constitution or administration of those companies.  An allegation that a BVI entity was involved in an alleged fraud was "neutral for forum purposes".  This was particularly the case where the "real target" of the claim was a non-BVI resident.

"Wishful thinking: intention versus construction": BVI Court rules on the Construction of Trusts

 The BVI court recently considered the construction of the Trust Deed of a BVI administered trust (the Trust).  The Trust Deed listed a number of beneficiaries under the Trust defined as Specified Beneficiaries.  Each Specified Beneficiary was listed with a percentage figure that purported to indicate their entitlement under the trust fund of the Trust (Percentage Entitlements).  Harneys acted for the trustee (the Trustee) and brought an action for the court's assistance with interpretation of the Trust Deed and a declaration from the court that the Trustee is within its powers to amend the list of Specified Beneficiaries and the related Percentage Entitlements.  The Trustee is in possession of a Letter of Wishes from the now deceased settlor, indicating his wish to amend the list of Specified Beneficiaries by deleting one name and adding two more, the Additional Beneficiaries, and to vary the Percentage Entitlements accordingly.
 Mr Justice Bannister found that the Percentage Entitlements did not create a fixed interest in the trust fund of the Trust for the Specified Beneficiaries and that the trustees had a legitimate power to vary, amend and delete persons from the list of Specified Beneficiaries and the related Percentage Entitlements under the Trust Deed.  Mr Justice Bannister made further comment on the construction of the Trust Deed considering the status of superadded terms and definitions in relation to those that exist in a typed precedent document.  The Judge found that although the Specified Beneficiaries and Percentage Entitlements were "undoubtedly" unique to the Trust Deed, it did not follow that "those words of entitlement are to be accorded any special status of priority over the other provisions of the trust deed".  The Judge found that it was not possible to infer the settlor's intention from this addition to the Trust Deed and that, because this Trust Deed is not a standard form commercial document in common use between merchants requiring completion or adaptation to conform it to the particular transaction in question, the typed/printed distinction therefore did not arise.

Exercising caution in the pleading of oral agreements – summary judgment: 
Clearlie Todman-Brown v The National Bank of the Virgin Islands Limited, BVI HCV 64 of 2013, Byer J.

 This case follows the recent line of BVI authority clarifying the scope of the Court's discretion in deciding whether to grant summary judgment under CPR 15. The Applicant was the defendant bank which sought to argue that the cause of action, as pleaded against it, was based on a bald assertion of an obligation owed by the bank and disclosed no viable claim.

 The Court held that in making the requisite assessment for summary judgment, all of the evidence and pleadings as filed had to be taken into account. Having examined these in depth, the Court concluded that the lack of specificity in the pleadings surrounding the nature of the relevant agreement was a fatal flaw. In particular, any oral agreement must have pleaded specifics so the party against whom it is alleged can know the case against it. There would need to be an indication somewhere in the pleadings of when, where, in what manner, and the subject matter of nature of the agreement.
 Approving the wording of the Saunders CJ(Ag) in Bank of Bermuda Ltd v Pentium, Civ App no 14 of 2003 BVI, at paragraph [18], the Court recognised that in exercising its discretion a judge should not allow a matter to proceed to trial where a party has produced nothing to persuade the court that there is a realistic prospect of success. Speculative claims should not be fostered or encouraged by the Court.
 The application for summary judgment was therefore granted.

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.

Winston Wambua

For more information please contact me on

Mobile +971553350517


Skype: Winston.wambua

Saturday, 7 September 2013

Franchise In Dubai Business Guide Operations

Dubai describes itself as the fastest-growing metropolis on the planet and there is no disputing the fact that it is one of the world's most desirable business centers, with very low or zero taxation, attractive investment incentives, a stable economy, superb communications, well-educated workforce, state-of-art infrastructure, robust economic cluster of technology, media, finance and healthcare hubs. All these make Dubai a viable and attractive proposition for any business and providing investors with a unique and comprehensive value added platform.

Legal Structures for Business

The Federal Law stipulates a total local equity of not less than 51% in any commercial company and defines seven categories of business organisation, which can be established in the UAE. It sets out the requirements in terms of shareholders, directors, minimum capital levels and incorporation procedures. The seven categories of business organisation defined by the Law are:

• General partnership company

• Partnership-en-commendam

• Joint venture company

• Public shareholding company

• Private shareholding company

• Limited liability company (LLC)

• Share partnership company

 Out of these seven activities LLCs are more commonly used by the foreign investors.

 Apart from these seven categories, FDIs are encouraged through Branches and representative offices of foreign companies and 100% foreign owned professional firms. 100% foreign ownership is permitted in the Free Trade Zones too.

 Limited Liability Company

 A Limited Liability Company can be formed by a minimum of two and a maximum of 50 persons whose liability is limited to their shares in the Company's capital. Most Companies with expatriate partners have opted for this Limited Liability Company, due to the fact that this is the only option which will give maximum legal ownership i.e. 49% to the expatriates for a trading license.

 51% participation by UAE nationals is the general requirement for the Limited Liability Companies. Therefore the normal shareholding pattern for an LLC will be:

 Local sponsor - 51% and

 Foreign Shareholder (s) - 49%

 The minimum capital requirement is AED 300,000 (US$ 82,000), contributed in cash. While foreign equity in the Company may not exceed 49%, profit and loss distribution can be mutually agreed. Responsibility for the management of a Limited Liability Company can be vested in the foreign or national partners or a third party.

 The time required to form a company will be approximate 1-2 weeks from the date of receipt of all the documents. The procedure and cost break up will be given upon request.


Except for foreign companies operating under special licences within duty-free areas in the State, foreign companies shall not practice their main activities or establish offices or

Branches thereof in the State until permit to this effect be obtained from the Ministry after prior approval of the Concerned Authority had been obtained. The issued permit shall specify the activity which a company is authorized to carry out.

Such permit shall be issued if the company engages an agent to be a natural person holding the state nationality or a company fully owned by natural citizens, and whose entire partners be nationals too.

The Agent's responsibilities towards the company and third parties shall be limited to rendering necessary services to the company without his h\bearing any financial liabilities or obligations related to the company or its branches and offices inside and outside the State.

Foreign Companies licensed to operate within the state, under the preceding para, shall not start their business except after registration at the Ministry in the Foreign Companies

Commercial Register.

Entries in the said Commercial Register as well as control of same Foreign Companies' accounts & balance-sheets shall be regularized vide a ministerial decision to be issued in this respect.

 The Foreign Company's officer or branches shall be governed by the laws applied within the State.


- 90 -

A foreign company or its offices or branches referred to in the preceding Article shall not

commence their activities in the State except after entry in the Register of commerce.

They shall have a separate balance-sheet, a separate profit a-and loss account and shall appoint auditors.

Now what happen if you need to trade in UAE while you are a foreign entity?

 Say you are a foreign entity trying to relocate your Commercial Business in Dubai; only companies who are into professional activities can only get a license in Dubai. But if you are a commercial trade company targeting Local exposure like DHL, Coco Cola, channel, Adobe to say the few you need to Franchise.

 A franchise acts like a license for rapid expansion, a brand’s recognition and provides a consistent method to deliver your brand‘s promise. Franchises are based on a financial relationship between the franchisor and franchisee.

This guide summary looks at what is franchising, how it works, why franchising is growing as a way of doing business and what makes a good franchise. Aside from a basic understanding of franchising, the guide considers the benefits given by a franchise and provides basic guidance to allow businesses to benefit from innovation.

Franchising is not restricted just to fast food outlets and gardening contractors. There are now franchises for mentoring managers and sportspeople and franchises for internet shopping.

In the future the Dubai economy will more likely be filled by innovative and creative franchises which seek to capitalize on their market lead and intellectual property advantage. Franchises fill a market need and therefore, are the fastest growing way of doing business.

The 1980’s and 1990’s brought radical changes to the employment market and the way people work. The oil-shocks and stock market corrections, the opening up of the world economy, reduction in subsidies, government deregulation and downsizing thrust into the job market capable, energetic and resourceful people who work on their own.

Franchisees are people who have been employed in the past by someone else and a franchise opportunity is seen as a more relaxed way of making the transition from working for an employer to being self-employed. The risk factor of a proven business is also seen as a better option than breaking totally new ground. Thus, franchises are taken up by people prepared to invest in themselves, their personality and their skills who look for freedom and the rewards of hard work. Franchises are a personal investment, in the equity invested in the business, in the time and energy required to achieve success. Therefore, it is important to take a few commonsense precautions when selecting a franchise.
For more information please client here
Winston Wambua

For more information please contact me on

Mobile +971553350517


Skype: Winston.wambua

Friday, 6 September 2013

Common Customs Law of the GCC States

Common Customs Law of the GCC States

The GCC was established in accordance with an agreement concluded in 1981 in Riyadh, Saudi Arabia between: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE. These countries declared that the GCC is established in view of the special relations between them, their similar political systems based on Islamic beliefs, joint destiny and common objectives.

The geographic proximity of these countries and their general adoption of free trade economic policies are factors that encouraged them to establish the GCC.

The objectives specified were the achievement and enhancement of coordination in the different areas between the member countries and their people and the adoption of similar systems in economic and financial matters, commerce and customs, education and culture, social affairs and health, information and tourism, legislation and administration, science, technical, industrial, mining, agriculture, the establishment of joint project in these areas and the encouragement of private sector activities for the general benefit and welfare of their people.


In 1982 the GCC countries concluded the joint Economic Agreement granting specific privileges and advantages to nationals of member countries to perform economic and trading activities in other member countries. This was followed by similar other agreements to encourage economic relations, trade and practice of professions in the member countries.

Common Customs Law of the GCC States

Unification of the Customs laws and procedures in the Customs Administration of the GCC states is one of the main objectives that the GCC States seek to achieve. The adoption of a common Customs law, which unifies Customs procedures in all GCC Customs administrations and enhances cooperation among member States in the Customs field, is one of the envisaged objectives.

For more information click here

GCC Common Customs Law English.pdf

File Size: 322KB

Winston Wambua

For more information please contact me on

Mobile +971553350517


Skype: Winston.wambua

Thursday, 25 April 2013

Cayman Creates Incorporated Cell Companies

A framework for incorporated cell companies in the insurance sector was created in the Cayman Islands on 25 March, when the Legislative Assembly passed an amendment to allow the registration of portfolio insurance companies, or PICs, within segregated portfolio company insurers (SPCs).

PICs offer four main advantages over existing SPCs, which also are offered in the Cayman Islands, said the Minister for Financial Services, the Hon. Rolston Anglin, who presented the Insurance (Amendment) Bill 2013 to the Legislative Assembly.

1. A PIC is a separate legal entity, whereas a segregated portfolio of an SPC is not. This means the PIC may have greater ease in dealing with counterparties than a segregated portfolio of an SPC.

2. Unlike a segregated portfolio of an SPC, a PIC can contract with another cell of its controlling SPC, or with the SPC itself.

3. Because each PIC is a separate legal entity, there should be less risk of inadvertent comingling of assets.

4. A single PIC can be wound up without affecting its controlling SPC or other PICs; this is not possible within an SPC structure.

Minister Anglin said that PICs compete with incorporated cell companies (ICCs) that are offered in other captive domiciles, and with structures such as the Delaware Series LLC. The PIC model is also more efficient and cost-effective than introducing standalone ICC legislation. And since PICs were created through an amendment to the Insurance Law, 2010, Cayman has positioned this vehicle to operate within fundamental and well-understood principles of corporate law, and to meet international standards.

‘PICs do not involve the highly creative and untested jurisprudence involved in an ICC’, Minister Anglin said. ‘Furthermore, because they will take on the form of an exempted company they will be subject to the same legal requirements as any exempted company’. The Bill also creates new class of insurer known as Class B(iv).

Minister Anglin thanked the Cayman Islands Monetary Authority, which regulates the country’s financial services industry; and the joint public-private sector Financial Services Legislative Committee, for their work on drafting the amendment.Cayman Islands Government Press Release 26 March 2013, George Town, Grand Cayman.

Winston Wambua

For more information please contact me on

Mobile +971553350517


Skype: Winston.wambua

Wednesday, 10 April 2013

What are types of Business license entities in Dubai/UAE?

What are types of Business license entities in Dubai/UAE?

The principal forms of business structures are:

   ·         -Limited Liabilities Company.
   ·        - Professional License.
   ·         -Industrial License

The main key differences between LLC License & Professional License

The difference between the two forms of license is as following:-

a)  L.L.C.: Owners have limited personal liability for the debts and actions of the LLC. Other features of LLC are more like a partnership, providing management flexibility and the benefit of pass-through taxation. A Limited Liability Company can be formed by a minimum of two and a maximum of 50 persons whose liability is limited to their shares in the Company's capital. The time required to form a company will be approximately 1-2 weeks from the date of receipt of all the documents. and procedures and the breakdown of the cost can be given upon request.

 b)  Professional License: A Professional License is a type of company formation structure in Dubai whereby the foreign investor or foreign owner has 100% ownership of the company. It is compulsory to appoint a local UAE agent not the sponsor for this type of company also, with the only exception being that the local UAE sponsor does not own any equity in the company. Professional firms are those which consist of professionals and practitioners and practice non-commercial activities. In setting up a professional firm, 100% foreign ownership, sole proprietorships or civil companies are permitted. The firms, which are registered as professional companies or firms may only practice specific activities and not extend that to any commercial business.

These activities include the following services:-

·        - Legal practice and consultancy
·         -Auditing, Organizing and keeping accounting records and books
·         -Civil engineering and architecture consultancies.
·         -Managerial and economic consultancies and studies
·         -Technical services
·        -Medical and curative services
·        - Educational services

No, limited liabilities companies are restricted to trading and industrial activities, and civil business companies are established for practicing professional activities.

What are the formalities for registration of the Business?

·         Initial approval from economic department
·         Trade name approval
·         Court Document (depend on company share capital)
·         Typing LLC contract (Arabic & English)
·         Ministry of economic fees
·         Sponsorship Fee

Do I need a local sponsor?

Yes, to operate any kind of business we need local sponsor for commercial license and Agent for Professional license in U.A.E.
How many partners can we have in the Company?
We can have minimum of 2 partners and maximum of 42 partners in the co. (U.A.E. Sponsor 51% + Expat 49%

Do I need an office for registration?

Yes, to operate any type of business and to get trade license, tenancy contract of the office is required

Why Sponsor have 51% Shares in the Company?

 Federal Law stipulates a total local equity of not less than 51% in any commercial company and defines seven categories of business organizations which can be established in the UAE. It categorises and defines the requirements in terms of shareholders, directors, minimum capital levels and incorporation procedures. It further lays down provisions governing conversion, merger and dissolution of companies.

The seven categories of business organizations defined by the law are:

·         General Partnership Company
·         Joint venture Company
·         Public Shareholding Company
·         Private Shareholding Company
·         Limited liability Company
·         Share Partnership Company

Of the entities listed above, most foreign businesses choose the limited liability company
as foreigners can exert significant control over them and it requires a relatively small
amount of minimum capital to start up. Previously limited liability companies in Dubai
were required to have a minimum share capital of AED 300,000 and those in other
Emirates required a minimum of AED 150,000. However, following an amendment to
Article 227 of the Companies Law,8 shareholders now have the right to determine the
share capital of their limited liability companies, provided that such company will have
sufficient capital to achieve its objects.9 Such an entity may, however, be inappropriate to
achieve certain business goals. For example, businesses involving banking, insurance
or investment activity on behalf of third parties may only be conducted by a public joint
stock company, and limited liability companies may not offer their shares for public
subscription, which is a central feature of the public joint stock company.

The key limitation on entities incorporated under the Companies Law is that 51 percent
of the capital of a company must be owned by a UAE national.10 However, it is possible
for the constitutional documents of a limited liability company to contain the following
provisions designed to protect the interests of a foreign minority shareholder:

• the foreign shareholder may appoint all of the directors;

• the foreign shareholder may appoint the general manager;

• the foreign shareholder may veto major decisions of the company;

• the foreign shareholder may be entitled to all of the assets of the company on winding
   up; and

• the foreign shareholder may be entitled to more than 49 percent of the company’s profits.11

How much time does it take to establish a Company?

It takes approximately 5-7 working days depending on the availability of required documents from you.
You need to renew your trade license after every one year based on Annexure-2. Normally the license is issued for one year and the same has to be renewed every one year. But if you have a tenancy contact valid for to 2 year you can also get your license valid for 2 years.

What is the Benefit of registering the L.L.C. COMPANY from A Free Zone Company?

·        You are eligible to trade any were comparing to Free Zone you can only trade with the free zone its self, if you trade out of free zone you are subjected to 5 % of the custom duty

·        You can operate without the interference of the local ?

All business activities carried out in Dubai are tax free at corporate and personal level. Docs, required for formation of Co.

-Passport Copy of the investors.
-Min 3 names to be provided for registering Trade name.
-Tenancy contract of the Office which need to be attested from the Land department 

What are the benefits of business setting up in Dubai?

United Arab Emirates       0% 

Income Tax Rate

United Arab Emirates      0%
Corporate Tax Rate

United Arab Emirates       0%
Sales Tax / VAT Rate

No taxes of any sort and no tax department

No filing of accounts

No tax exchange agreements with ANY country

No public record of directors or shareholders

Highly flexible banking system geared to the requirements of high net worth international investors

Winston Wambua

For more information please contact me on

Mobile +971553350517


Skype: Winston.wambua

Tuesday, 2 April 2013

Offshore financial structures

Offshore financial structures

The bedrock of most offshore financial centre is the formation of offshore structures – typically:

·         offshore company
·         offshore partnership
·         offshore trust
·         private foundation
     Offshore structures are formed for a variety of reasons.

Legitimate reasons include:

Asset holding vehicles.  Many corporate conglomerates utilize a large number of holding companies, and often high-risk assets are parked in split companies to prevent legal risk accruing to the main group (i.e. where the assets relate to asbestos, see the English case of Adams v Cape Industries). Similarly, it is quite common for fleets of ships to be separately owned by separate offshore companies to try to circumvent laws relating to group liability under certain environmental legislation.

Asset protection.  Wealthy individuals who live in politically unstable countries utilize offshore companies to hold family wealth to avoid potential expropriation or exchange control limitations in the country in which they live. These structures work best when the wealth is foreign-earned, or has been expatriated over a significant period of time

Avoidance of forced heirship provisions. Many countries from France to Saudi Arabia (and the U.S. State of Louisiana) continue to employ forced heirship provisions in their succession law, limiting the testator's freedom to distribute assets upon death. By placing assets into an offshore company, and then having probate for the shares in the offshore determined by the laws of the offshore jurisdiction (usually in accordance with a specific will or codicil sworn for that purpose), the testator can sometimes avoid such strictures.

Collective Investment Vehicles. Mutual funds, Hedge funds, Unit Trusts and SICAVs are formed offshore to facilitate international distribution. By being domiciled in a low tax jurisdiction investors only have to consider the tax implications of their own domicile or residency.

Derivatives trading. Wealthy individuals often form offshore vehicles to engage in risky investments, such as derivatives trading, which are extremely difficult to engage in directly due to cumbersome financial markets regulation.

Exchange control trading vehicles. In countries where there is either exchange control or is perceived to be increased political risk with the repatriation of funds, major exporters often form trading vehicles in offshore companies so that the sales from exports can be "parked" in the offshore vehicle until needed for further investment. Trading vehicles of this nature have been criticised in a number of shareholder lawsuits which allege that by manipulating the ownership of the trading vehicle, majority shareholders can illegally avoid paying minority shareholders their fair share of trading profits.

Joint venture vehicles. Offshore jurisdictions are frequently used to set up joint venture companies, either as a compromise neutral jurisdiction (see for example, TNK-BP) and/or because the jurisdiction where the joint venture has its commercial centre has insufficiently sophisticated corporate and commercial laws.

Stock market listing vehicles. Successful companies who are unable to obtain a stock market listing because of the underdevelopment of the corporate law in their home country often transfer shares into an offshore vehicle, and list the offshore vehicle. Offshore vehicles are listed on the NASDAQ, Alternative Investment Market, the Hong Kong Stock Exchange and the Singapore Stock Exchange. It is estimated that over 90% of the companies listed on Hong Kong's Hang Seng are incorporated in offshore jurisdictions. 35% of companies listed on AIM during 2006 were from OFCs.

Trade finance vehicles. Large corporate groups often form offshore companies, sometimes under an orphan structure to enable them to obtain financing (either from bond issues or by way of a syndicated loan) and to treat the financing as "off-balance-sheet" under applicable accounting procedures. In relation to bond issues, offshore special purpose vehicles are often used in relation to asset-backed securities transactions (particularly securitisations).

Illegitimate purposes include:

Creditor avoidance. Highly indebted persons may seek to escape the effect of bankruptcy by transferring cash and assets into an anonymous offshore company.

Market manipulation. The Enron and Parmalat scandals demonstrated how companies could form offshore vehicles to manipulate financial results.

Tax evasion. Although numbers are difficult to ascertain, it is widely believed that individuals in wealthy nations unlawfully evade tax through not declaring gains made by offshore vehicles that they own. Multinationals including GlaxoSmithKline and Sony have been accused of transferring profits from the higher-tax jurisdictions in which they are made to zero-tax offshore centres

Ship and aircraft registrations
Many offshore financial centres also provide registrations for ships (notably Bahamas and Panama) or aircraft (notably Aruba, Bermuda and the Cayman Islands).

Aircraft are frequently registered in offshore jurisdictions where they are leased or purchased by carriers in emerging markets but financed by banks in major onshore financial centres. The financing institution is reluctant to allow the aircraft to be registered in the carrier's home country (either because it does not have sufficient regulation governing civil aviation, or because it feels the courts in that country would not cooperate fully if it needed to enforce any security interest over the aircraft), and the carrier is reluctant to have the aircraft registered in the financier's jurisdiction (often the United States or the United Kingdom) either because of personal or political reasons, or because they fear spurious lawsuits and potential arrest of the aircraft.

E.g., in 2003, state carrier Pakistan International Airlines re-registered its entire fleet in the Cayman Islands as part of the financing of its purchase of eight new Boeing 777s; the U.S. bank refused to allow the aircraft to remain registered in Pakistan, and the airline refused to have the aircraft registered in the U.S.

Insurance,A number of offshore jurisdictions promote the incorporation of captive insurance companies within the jurisdiction to allow the sponsor to manage risk. In more sophisticated offshore insurance markets, onshore insurance companies can also establish an offshore subsidiary in the jurisdiction to reinsure certain risks underwritten by the onshore parent, and thereby reduce overall reserve and capital requirements. Onshore reinsurance companies may also incorporate an offshore subsidiary to reinsure catastrophic risks.
Bermuda's insurance and re-insurance market is now the third largest in the world.[46] There are also signs the primary insurance market is becoming increasingly focused upon Bermuda; in September 2006 Hiscox PLC, the FTSE 250 insurance company announced that it planned to relocate to Bermuda citing tax and regulatory advantages.

Collective investment vehicles

Many offshore jurisdictions specialise in the formation of collective investment schemes, or mutual funds. The market leader is the Cayman Islands, estimated to house about 75% of world’s hedge funds and nearly half the industry's estimated $1.1 trillion of assets under management,  followed by Bermuda, although a market shift has meant that a number of hedge funds are now formed in the British Virgin Islands. As at year end 2005, there were 7,106 hedge funds registered in the Cayman Islands, 2,372 hedge funds in the British Virgin Islands and 1,182 in Bermuda. These figures do not include other collective investment vehicles. See also the recent survey by Deloitte in Hedgeweek.

But the greater appeal of offshore jurisdictions to form mutual funds is usually in the regulatory considerations. Offshore jurisdictions tend to impose few if any restrictions on what investment strategy the mutual funds may pursue and no limitations on the amount of leverage which mutual funds can employ in their investment strategy. Many offshore jurisdictions (Bermuda, British Virgin Islands, Cayman Islands and Guernsey) allow promoters to incorporate segregated portfolio companies (or SPCs) for use as mutual funds; the unavailability of a similar corporate vehicle onshore has also helped fuel the growth of offshore incorporated funds.[citation needed]

Banking Traditionally, a number of offshore jurisdictions offered banking licences to institutions with relatively little scrutiny. International initiatives have largely stopped this practice, and very few offshore financial centres will now issue licences to offshore banks that do not already hold a banking licence in a major onshore jurisdiction. The most recent reliable figures for offshore banks indicates that the Cayman Islands has 285 licensed banks, the Bahamas has 301. By contrast, the British Virgin Islands only has seven licensed offshore banks.

Winston Wambua

For more information please contact me on

Mobile +971553350517


Skype: Winston.wambua

Sunday, 31 March 2013

What Foundation Vs Trust legal use and Purposes Case Study #1

Case Study #1 

How Tragedy and Human Weakness Can Endanger Your Life's Work

Richard was a fairly wealthy man you can. He had three beautiful adult children, all of whom were married to great partners. He himself had been married to the same women for 35 years. At the age of 57, Jacque, his still young and beautiful wife, had a car accident that disfigured her face so badly that even plastic surgery did very little to restore her once beautiful countenance.

Richard and Jacque were accustomed to a life that included socializing with what I call "the beautiful people." Some of Jacque's friends were starlets and quite notable individuals. With the disfigurement resulting from the accident, she never seemed to feel comfortable in the same circles. Jacque went into a deep depression over this and her Dr. put her on prescription medications for anxiety.

Unfortunately, her withdrawal from the social circles left her home with her feelings and she started turning to alcohol and eventually cocaine as an escape from all her unfamiliar life. She started herself in a cycle of being up and down, depending on how much of what substance she had in her. The only time she ventured out of the home was to make a trip to the drive-thru liquor store or to see her "dealer." This was devastating to Richard. He couldn't comfort her and she was spinning out of control.
 Soon came another car accident - Jacque was inebriated, at fault, and she caused injuries to the other parties. With a DUI charge under her belt, Richard, fearing that the worst was yet to come, set up an asset protection plan making their three children equal beneficiaries.

About eight months passed, Jacque had sought help for her substance abuse and was attending depression class , AA meetings and had been sober for almost six months. Even though her license had been suspended due to accident number two, she still drove to her meetings occasionally, whenever Richard or a friend couldn't drive her.

She still struggled with depression but was making what "seemed" like progress. Until one night on her way to a meeting, she decided instead to stop and get a single wine cooler. Tragically, this led to a four-hour relapse and ended in a third automobile accident and the bills soared, as well as the legal fees for her defense and the lawsuits from the victims and their insurance companies.
This story doesn't get any better.
Three months later, Richard left town on a business trip and Jacque, so deep in her guilt, shame, depression and loneliness, spent the next four days on a cocaine binge which ended in a cardiac arrest. Richard returned from his trip to find his once lovely wife sprawled out on the floor, drugs and paraphernalia scattered about their home.
Suspecting foul play, Richard immediately called the paramedics…but it was far too late. Once they pronounced Jacque dead, Richard called his oldest son to break the news. The next five hours or so must have been very difficult with the police swarming his home gathering evidence.Sixteen hours later, when the first of his three children arrived at the estate, Richard was also dead…his son found him in his study…with an empty bottle of his wife's prescription Klonopin, a half bottle of Kelt Petra "Tour du Monde" on the table in front of him and in his lap…a picture of him and Jacque on their 25th wedding anniversary trip.This story made the local news and the media had a heyday with it… but none of the judgment creditors were able to access any of Richard's wealth, nobody except his children, because he had set up an ironclad asset protection plan.

This is a story that is so tragic that it's hard to say there were any winners. This story does show the frailty and unpredictability of life. The ONLY positive thing here is that the children weren't further tortured by a long and arduous probate period or watching their parents estate be gobbled up by greedy litigants. The painful loss of both parents was excruciating enough for them.

Winston Wambua

For more information please contact me on

Mobile +971553350517


Skype: Winston.wambua

What Foundation Vs Trust legal use and Purposes

Trusts are a legal concept developed in common law jurisdictions, the laws and principles of which are found in statute and judicial decisions.

Foundations are a civil law concept, primarily governed by the statutory laws of the relevant jurisdiction.


A Trust is created when a person (the settlor) transfers property to another person (the Trustee) to deal with that property for the benefit of a third party (the beneficiary). The trust is not a legal entity and therefore does not have legal personality. It is a private arrangement between the trustees, settlor and beneficiary ies. There is no requirement to register a trust.

There is a split in legal ownership of the trust assets, whereby the trustees legally own and hold the assets in their own name but for the sole benefit of the individuals or institutions designated as beneficiaries in the trust deed.
The trust is governed by the terms of the trust deed. A non-binding letter of wishes might also be issued by the settlor to guide the trustees.
The beneficiaries are defined in the trust deed. They may be natural persons, companies or charities. The beneficiaries may include the settlor.
A trust may be revocable or irrevocable. The' duration of a trust is sometimes limited by the governing law, although some trust jurisdictions have abolished their rules relating to maximum duration (perpetuity). Charitable and purpose trusts may be of unlimited duration.

A foundation is a legal entity with legal personality. For a foundation to exist, the [name/ details] of the foundation as well as its statutes have to be registered with the Foundation register in the jurisdiction in which the foundation is incorporated.

Assets donated by the founder to the foundation arc owned by the foundation in its own name. These assets may be held directly by the foundation or consist of shares in an underlying company.  Assets are then endowed to the foundation which is governed by regulations issued according to the desires of the economic founder

Generally speaking, beneficiaries are designated by the founder in a separate document or by-law. They may be natural persons, companies or charities. The founder may also be a beneficiary.
Where there is a civil law mandate, the foundation ran be dissolve and liquidated on the instructions of the launder. A foundation may be set up for an unlimited period of time.


The control and administration of the trust assets is exercised by one or more trustees in accordance with the terms of the trust deed and the Jaw of the trust. Trustees may be individuals or corporations
In founder may the power of control and administration belongs  to the foundation board, which is appointed by the founder. Such board can comprise individuals or corporate members.
Once the trust has been settled, the settlor no longer has any rights in respect of the trust. Unless these are reserved expressly by the trust instrument. The settlor may express his wishes in a non-binding way as to how the discretionary powers of the trustees are  to be exercised.

The founder may maintain control over the foundation through a written mandate. The founder frequently acts as principal and instructs the foundation board on all relevant matters.
The foundation board is required to act in the interests of the founder and the beneficiaries.
The trustee, as the legal owner of the assets, has a fiduciary duty to act in the best interests of the beneficiaries. A protector or other advisor may be designated in the trust deed, which will also designate such person’s powers and/ or duties. Any person may be granted a proxy by the foundation.
A Foundation may have a protector or advisory board with similar powers to those used in a trust context.


Bankable and non-bankable assets can be held by a trust.  There is no minimum amount as long as there is an asset of some value. Bankable and non-bankable assets can be held by a foundation.  The minimum amount usually required is CHF 30,000. The trustee is legally responsible for the management of the assets and must art in the best interests of the beneficiaries.
The trustee is liable to the beneficiaries if it fails to carry out its duties. The- extent of the trustee's liability, if in default, varies between jurisdictions and may be limited to a certain extent by the terms of the trust deed. The usual standard is liability for gross negligence or willful default.
Management is usually restricted as to who may act as a member of the foundation board. Directors of the Foundation do not owe direct fiduciary duty to the beneficiaries and must act in accordance with the by-laws.  The trustee ran carry out any commercial activities and makes any investments as long as they arc in the best interests of the beneficiaries. Distributions made by the trustees must comply with the conditions set by the trust deed and take into account d1e wishes of the settlor.
Distributions are typically made in accordance with the instructions of the founder and regulated through the by-laws.


Trusts are mainly used as a vehicle to hold business and personal assets for estate and tax planning purposes as well asset protection (e.g. in case of divorce, incapacity, political risk etc.). Trusts may also be created lor charitable purposes. Forever,  a trust. May be used to facilitate commercial transactions such as purchases of real estate, opening and administering bank accounts, investing in stock markets and mutual funds,  and the entering into of international agreements.

Foundations are also created for succession purposes but less frequently used for tax planning. A private foundation is not suitable for the pursuit of commercial purposes. A foundation can only be run in a commercial manner if this facilitates the attainment of its non-economic purpose or when required for the preservation or administration of assets. Foundations may also be used to manage and administer the distribution of money and family properties, for philanthropic or ecclesiastical purposes, or to be the holding entity that operates as the corporation's owner.


Trusts are private arrangements between the settlor and the- trustee and trustees are subject to a duty of confidentiality. The beneficiaries are only known internally and are not registered anywhere. The assets are often held in the name of an underlying company which is owned by the trustees. The beneficiaries usually have a right to information relating to the trust's documents and the accounts. This may be more restrictive in some jurisdictions and may be restricted to some extent by the trust deed.
Total anonymity is guaranteed through a foundation. Although the statutes are registered, the regulations and therefore the beneficiaries are only known internally. The beneficiaries' rights to information can be limited or in special cases excluded.


Trusts can easily be transferred between common lawful jurisdiction as the governing law of the trust can usually be changed felon one jurisdiction to another without room much difficulty. Moreover, changing the place of management  is not normally a problem.
Foundations are generally tied to one civil law jurisdiction and therefore, although the possibility of transferring a foundation to another jurisdiction exists, it is more restrictive than with trusts. In addition, the articles and by-laws may limit this flexibility.

For case Study regarding  “What Foundation Vs. Trust legal use and Purposes “ visit

Winston Wambua

For more information please contact me on

Mobile +971553350517


Skype Winston.wambua

Saturday, 23 March 2013

Capital Flight introduction

Capital flight is notoriously hard to define precisely. Many people agree that it involves the deliberate and illicit disguised expatriation of money by those resident or taxable within the country of origin. According to a 2005 book on the subject, capital flight generally means "an outflow of capital that is not part of normal commercial transactions from a country where capital is relatively scarce." As a result of capital flight, domestic resources available for development and for financing public services are reduced.  Capital flight also depresses economic activity and has a negative impact on long-term growth rates.
Tax evasion is often the motive for the flight of capital and the two are implicitly linked. But other reasons exist too -- such as  seeking a secure location for cash resources, avoiding local currency risk, or avoiding other legal obligations within the state from which capital flight takes place. (These might, for example, relate to inheritance laws.) For these reasons, capital flight would remain a problem even if there were no tax incentive implicit within it.

What is certain, however, is that capital flight impacts negatively on capital-scarce economies: the loss of domestic savings leads to lower levels of internally funded investment, and the loss of tax revenues flowing from those savings leads to lower revenues available for public spending on health, education and public infrastructure.  Additionally, use of external borrowings to finance government deficits imposes a debt servicing burden which impacts heavily on economic growth and social stability and attractiveness to investors. It is also important to remember that the tax loss from capital flight is likely to be greater than that from domestic tax evasion of initially similar value. This is because in the case of domestic tax evasion the money stays in the country and generates at least some tax revenue (for example sales tax or VAT when it is spent in the local economy) whereas capital that has fled offshore is not invested locally and does not generate local tax revenue.
Capital flight has certain characteristics that help distinguish it from normal monetary and resource flows. These are:
Flight capital is domestic wealth permanently put beyond the reach of appropriate domestic authorities. Much of it is unrecorded due to deliberate misreporting;
Because no (or little) tax is paid on wealth that is transferred as capital flight, it is associated with a public loss and private gain.
Because tax evasion is illegal and subject to criminal sanction in most countries, the management of flight capital is a form of money laundering. Offshore secrecy arrangements play a crucial part in the laundering process by enabling the origin and ownership of the capital to be effectively disguised.

It must be stressed that legal, well-documented and reported flows of wealth on which proper taxes have been paid are a perfectly legitimate part of everyday commercial transactions and do not constitute capital flight. Legal international payments include those where:

The source of the wealth being transferred abroad is legal;
The outflows represent fair payment in a commercial transaction;
The transfer of wealth does not violate any laws of the country relating to foreign exchange or capital control;
The taxes due on the capital being transferred have been paid in the country of their origin;
The flows constitute a part of the official statistics of the country involved and are properly reported, documented and recorded

While capital flight often occurs through similar channels to those used for the legitimate transfer of funds, it does not meet some (or all) of the characteristics listed above. Much of the capital flight that occurs in West Africa, for example, involves cash and other portable valuables, including gemstones and high value metals, being smuggled across national boundaries.  Trade mis-pricing is an alternative way of shifting capital across national boundaries, particularly when large sums are involved.  Trade mis-pricing can be conducted in a number of ways, including mis-invoicing, transfer mis-pricing, re-invoicing through an apparently unrelated trading partner in an offshore territory, and other fraudulent invoicing practices.  Abnormally high priced import transactions are used to reduce the taxable profits in the country of import.  They can also facilitate money laundering and can be used to disguise illegal commissions hidden in the inflated prices.   Investigation of these types of fraudulent activities is made significantly more difficult by the opaque offshore structures used to disguise the identities of the different parties to the transactions.
A 2005 book contains some interesting history:
"The neglect of capital flight in current debates is striking given the attention it received at the 1944 Bretton Woods conference, (which) is said to have laid the foundations for today's financial order and many reformers today talk of the need for a 'renewed Bretton Woods vision' The Bretton Woods architects saw the regulation of capital flight as a key pillar of the international financial order they hoped to construct."

The two principal Bretton Woods architects, Harry Dexter White and John Maynard Keynes, were principally worried about large-scale capital flight from war-devastated European countries to the US, destabilising them and turning some of them towards the Soviet bloc. They recognised the difficulties in exerting capital controls, and they addressed these with a further proposal, as the book explains:

"They argued that controls on capital would be much more effective if the countries receiving that flight capital assisted in their enforcement. In their initial drafts of the Bretton Woods agreement, both Keynes and White required the governments of receiving countries to share information with the governments of countries using capital controls about foreign holdings of the latter's citizens. White went further in his draft to suggest also that receiving countries should refuse to accept capital flight altogether without the agreement of the sending country's government. Both of these proposals were strongly opposed by the U.S. financial community which had profited from the handling of flight capital in the 1930s . . . in the face of this opposition, the final IMF Articles of Agreement contained watered-down versions of Keynes' and White's roposals. Co-operation between countries to control capital movements was now merely permitted, rather than required."
The replacement of one word with another has had nothing less than catastrophic consequences for the world's poor.
Winston Wambua

For more information please contact me on

Mobile +971553350517


Skype Winston.wambua

Wednesday, 20 March 2013

Cyprus going bankrupt

Just when though article by Riegert, Bernd .The decision in Cyprus, to reject a bailout offer from the EU and the IMF was a mistake. It is a step further to eventually leaving the eurzone and could cost Cypriots even more
Parliament in Cyprus has made a grave mistake. Rejecting the conditions for an aid package from the eurozone and the International Monetary Fund (IMF) will have far-reaching consequences, not only for Cyprus itself, but also for the other 16 members of the euro currency area. The willingness to give the ailing banks and the nearly bankrupt state some 10 billion euros in emergency loans had been a generous offer by the EU and IMF.

But the parliament in Nicosia was under pressure from angry small savers, and subsequently followed an almost absurd logic. Yet, the bailout conditions were not about putting Cyprus under foreign rule, or imposing German interests. It was about keeping Cyprus afloat - the tiny state will be bankrupt by June.

Living beyond their means

The part that the Cypriots themselves would have had to contribute was some 5.8 billion euros and that was an appropriate share. That this amount was to be shouldered by bank clients and investors is an agreement by EU states, including Cyprus.

It is now obvious that the country, for years, has lived beyond its means. The business model to attract foreign capital with low taxes and lax controls on the banking sector went bust last summer. That is when the government in Cyprus asked for international help because the partly state-owned banks were in serious trouble. The national debt was threatening to spiral out of control - and that situation has not changed, despite what at first glance seems like a victory for angry bank customers.

 If the eurozone wants to keep Cyprus in the currency union, there has to be urgent negotiations with Nicosia. There is time until June to find a solution when the country will issue it's next batch of government bonds. It is difficult to conceive that eurozone finance ministers over the weekend had such poor judgment about the reaction their offer would cause in Cyprus. Poor management and communication mistakes were made by the EU.

Taxes  instead of levy on deposits?
The only option for the Cypriot government now is to get the money in some different way. Instead of a levy on every bank client's deposits, there could be drastic tax increases. But, should Nicosia fail to implement these as well, the country's troubled banks would go bankrupt, leaving small savers to bear losses considerably more significant than the 6 to 10 percent they would have had to pay with a levy.

If banks, and therefore also the state, go bankrupt, Cyprus would have to leave the eurozone. The 800,000 Cypriots would then have to find a new currency and work hard to get on their feet again. A new currency would most likely be dramatically depreciated and would lead to a great deal of money being lost.

Should Cyprus have to leave the eurozone, trust in the currency union on international financial markets would be seriously shaken. The debt crisis in Spain or Italy might also be reignited. Investors' trust in those two countries is already stretched thin.

Faith in Cypriot banks, most likely, is already lost. Starting Thursday (21.03.2013), when the country's banks reopen, private banking customers will try to withdraw their funds in cash from their accounts. That could quickly lead to banks going bankrupt - and it could be contagious. That's why Cyprus is "too big to fail" – even if, compared to other eurozone countries, it is tiny. Eurozone finance ministers now have to come up with a new plan as to how a country that goes bankrupt could exit the currency union.

Unpredictable risk
Should the eurzone try to save Cyprus, no matter what, it would signal to other ailing countries that they do not have to take their reforms and austerity measures all too seriously anymore. That would undermine the entire idea of eurzone bailouts and put the bloc's credibility on the line.

Parliamentarians in Cyprus have stood up to the mighty European Union, but the price they will have to pay for it is hard to gauge. It could be very high - a lot higher than the initial contribution which, after al,l would also have asked foreign bank customers to pay their share. The current celebrations on the streets of Cyprus are unlikely to last very long.

Analyst Robert Halver of the Baader Bank said the fear is that depositors throughout the eurozone might view the Cyprus experience as reason to start withdrawing their funds from bank accounts. Such a run on banks could create a new crisis for European governments, now in the third year of their debt crisis.
"What has been done in Cyprus is an experiment," Halver said. "If the population has to, in the form of their savings, contribute to rectify the mistakes that have been made in Cyprus, then there is a danger that in other countries people will decide, at the breakfast table, to withdraw their money. If money is withdrawn on a great scale, if we have a bank run, then we see the return of the bank crisis."

Russian President Vladimir Putin on Monday called the proposed levy "unfair, unprofessional and dangerous."  Russian banks and corporations have billions of dollars in Cypriot banks.

Cypriot media say it is unlikely lawmakers will agree to the terms set in the bailout. 
President Nicos Anastasiades said in a televised address to the nation Sunday if parliament does not approve the levy, Cyprus faces bankruptcy and the possible exit of Cyprus from the eurozone.

Winston Wambua

For more information please contact me on

Mobile +971553350517


Skype Winston.wambua