Asset Protection Trusts Under Bahamian Law

April 11, 2018 By Tanya R. HannaDownload PDF
Asset Protection Trusts Under Bahamian Law

Nassau, The Bahamas – Tanya Hanna, a partner in the law firm of Graham Thompson and member of the firm’s Corporate, Financial Services and Private Wealth Practice Group, has released an article, “Asset Protection Trusts Under Bahamian Law”.

A former Chairperson and Deputy Chairperson of The Bahamas branch of The Society of Trust and Estate Professionals (STEP), Tanya specializes in trusts and estate planning and represents a wide range of offshore and domestic clients, both institutional and individual.

Asset Protection Trusts Under Bahamian Law

In common with most international financial centres, The Bahamas has a legislative regime for what are popularly referred to as asset protection trusts (“APTs”) or creditor protection trusts (“CPTs”). The distinguishing feature of these regimes is an unusually short limitation period for the bringing of actions to have trusts set aside as a fraud on creditors. The Bahamas is no exception.  The fact is that The Bahamas has had such a regime in place for more than a quarter of century in the form of the Fraudulent Dispositions Act (“FDA”).

Under the FDA, the Bahamas Supreme Court has jurisdiction to adjudicate whether a disposition of assets constitutes a fraud on the particular creditor who has brought action and, if the court  finds that the assets were fraudulently transferred, it can set the disposition aside, but only to the extent necessary to meet the claims of that particular creditor.  In this latter regard, it should be noted that that there is no jurisdiction under the FDA to invalidate a trust in its entirety.  The court can, of course, effectively strip a trust of all of its assets (thereby effectively destroying the trust) if all of the transfers of assets into the trust were made with fraudulent intent and if the proven claims of the suing creditor exceed the aggregate trust assets. Even in this case, however, the court is not technically setting aside the trust. Instead, it is only setting aside the transfers, albeit to an extent which voids the trust of subject-matter which, in turn, would cause it to fail on that ground.

Under the FDA, a creditor has only two years from the date of any relevant transfer to bring action to have that transfer set aside on the basis that it was made with intent to defraud.

Creditors may, however, have alternative remedies. This will be the main focus of what follows.

One remedy would be for the creditor to ignore the FDA and The Bahamas altogether and instead attack the debtor directly in his home-jurisdiction with a view to obtaining an order  compelling the debtor (who is usually the de facto settlor of the trust) to repatriate assets transferred into the foreign trust.  This is precisely what happened in FTC v. Affordable Media (“the Anderson Case”) in the US 9th Circuit Court of Appeals (no. 98-16378 (15th June, 1999).

The Anderson case demonstrates that if a U.S. court feels that creditors are being denied their just desserts because the debtor has spirited away assets into a trust in a debtor-friendly jurisdiction in which discovery is also hard to come by because of robust confidentiality laws, an in personam jurisdiction may be invoked against the debtor… To continue reading, download the full paper “Asset Protection Trusts Under Bahamian Law”.

This writing is forthcoming in the fourth edition of Asset Protection Trusts, by Milton Grundy, Joe Field and John Briggs. Key Haven Publications Ltd.