For the record: A review of the British Virgin Islands Trustee (Amendment) Act, 2015
By Will Burnell From Harneys
Publication Date:12 May 2015
On 30 March 2015 a new section (the New Section) relating to trustees’ obligations to maintain trust records was inserted into the British Virgin Islands’ (BVI) Trustee Ordinance. The provisions of the New Section are not groundbreaking but the sanctions for non-compliance are punitive and consequently trustees should be eager to ensure full adherence.
In summary, the New Section provides that:
1. Every trustee must “maintain records and underlying documentation” (Records) for each trust of which it is trustee. Such Records include (but are not limited to) invoices and contracts relating to (i) payments and receipts of money by the trust, (ii) sales and purchases of goods by the trust, and (iii) the assets and liabilities of the trust.
2. The Records must “show and explain” the trust’s transactions and make it possible to determine with “reasonable accuracy” the “financial position of the trust” at any given moment.
3. The Records can be kept within or outside the BVI.
4. The Records must be kept “for a period of at least five years.”
5. Failure to observe these requirements (without lawful or reasonable excuse) constitutes a criminal offence which may be punished by a fine of up to $100,000, or a prison term of no more than five years.
The requirements of the New Section do not appear to add to the existing duties the common law places on trustees to keep clear trust accounts and ‘be ready with’ them at all times. The potential criminal sanctions for non-compliance with the New Section are, however, an extension to a trustee’s exposure under the common law. At common law, a trustee who fails to keep and be ready with accounts will usually be in breach of trust and may have to personally bear the cost of remedying the breach and any damage which flows from it, but there are no criminal sanctions.
With this additional exposure in mind trustees will be intent on ensuring that they comply with the New Section, but to do so successfully they will have to be careful not to be tripped up by a number of areas of uncertainty within the provisions. For example:
1. It is not clear whether the New Section is only intended to apply to BVI trustees of BVI trusts, or whether its scope extends to BVI trustees of non-BVI trusts and non-BVI trustees of BVI trusts. The safest approach must be to assume that the New Section applies to any trust which is governed by BVI law, or whose trustee has a physical presence in the BVI or is doing business there.
2. The New Section does not state when the five year retention period starts, or whether the obligation to retain falls away when the trustee ceases to be trustee. One might expect the retention period for each Record to start on the date it is created and end five years later (or on the date the trustee ceases to act as trustee, if earlier), but in light of the severe punishments for non-compliance trustees would be well advised to interpret the New Section more conservatively and retain all Records for five or more years following the date on which they cease to act as trustee.
3. There is no guidance on what is meant by the phrase “financial position of the trust.” Should a trustee consider itself compliant with the New Section’s requirements if it retains Records in respect of the assets it holds directly, or must it also maintain Records in respect of any underlying assets? This point is particularly relevant in the context of VISTA trusts where a BVI trustee will hold shares in a BVI company and often the BVI company will in turn hold shares in a number of other BVI or non-BVI companies. How far down the chain does the trustee need to go?
While the New Section does not make the extent of a trustee’s duty in this area clear, the common law does – the correct approach, both in respect of VISTA and non-VISTA trusts, has always been that a trustee should ensure it has details of all assets held by the trust, whether directly or indirectly, even if its administration and management powers and responsibilities in respect of those assets are diluted, as is the case where the VISTA legislation applies. The most straightforward way of satisfying this requirement in the case of trusts which hold underlying companies will be for the trustee to obtain copies of the companies’ annual financial statements.
Given that the New Section does not extend trustees’ duties under the common law, it is unlikely that the New Section will demand a higher standard of diligence from a trustee who is already performing its functions with the appropriate degree of care. However, a trustee’s failure to comply with its record keeping obligations may now result in it suffering draconian criminal punishments and consequently record keeping should be an issue which is at the forefront of the minds of all BVI trustees and trustees of BVI trusts.
