Another jurisdiction which has recently entered into the foundations market is the Seychelles, which enacted the Foundations Act 2009 (the "Act") in December of that year. We have briefly considered below certain key aspects of the Seychelles' law which differentiate it from some of the other offshore offerings in this field, particularly the Jersey foundation which is growing rapidly in popularity.
As is commonly the case, a Seychelles foundation must submit a written charter to the relevant regulatory authority (in this case the Seychelles International Business Authority ("SIBA") together with a prescribed fee, and SIBA will in turn issue a certificate of registration in relation to the new foundation. In the case of a Seychelles foundation (unlike a Jersey foundation), the charter must include the names and addresses of each founder of the foundation and details of its initial assets, as well as the name and address of the mandatory registered agent (which must be a Seychelles resident company or individual licensed to act as the registered agent of a foundation under the provisions of the International Corporate Service Providers Act 2003).
It is worth noting, however, that (i) there is no requirement for the person or persons fulfilling the role of founder(s) to be the providers of assets to the foundation and (ii) the initial assets of the foundation need only equal or exceed US$1 million (or equivalent in other currencies). It follows that no great loss of confidentiality need be entailed in filing the charter.
Whilst, as noted above, a Seychelles foundation must have a locally-resident and regulated registered agent, there is no requirement for a locally-resident person to be a member of the council of the foundation (a "Councillor"). The only restrictions on the identities of the Councillor(s) appear to be that (i) neither a protector nor a founder of the foundation may be its sole Councillor and (ii) the foundation itself must notify the registered agent of any changes in the identities of the Councillors with a certain time period.
On the positive side, the implication of these provisions seems to be that there need be no professional or regulated "third party" involved in the operation of the foundation, which will appeal to clients who are looking to be able to exercise full and unfettered control over the foundation and its assets. On the negative side it is difficult to see who will be in a position to supervise the Councillor(s), particularly if there is no protector of the foundation and if the foundation's charter and regulations explicitly prevent or restrict the ability of beneficiaries to obtain information about the foundation.
Whilst the Act specifically envisages that a Seychelles foundation may have a protector (essentially fulfilling a role similar to that of a guardian of a Jersey foundation) it is not mandatory to appoint one. Should one be appointed the only restriction on the question of who to appoint is that neither a sole Councillor nor a sole beneficiary may be appointed.
As with Jersey foundations, a Seychelles foundation may have one or more persons or classes of persons appointed as beneficiaries. One unusual restriction, however, is that a founder may not be the sole beneficiary of a Seychelles foundation unless the foundation's charter and/or regulations provide that he or she holds that status for his or her lifetime.
Perhaps of more importance is the manner in which the Act deals with the issue of beneficiaries' rights to information. The default position set out in section 62 of the Act is that any beneficiary is entitled to inspect and obtain copies of the charter of the foundation, its regulations, its accounts and all minutes or written resolutions of its Council. Crucially, however, the foundation's charter or regulations may specifically restrict or completely remove this right. A combination of such a restriction with a decision not to appoint a protector will lead to the council being able to operate with a very high level of confidentiality, albeit with concomitant limitations in the way in which the actions of the council can be supervised and the terms of the charter and regulations enforced.
One other area which the Act deals with in detail is making provision for a Seychelles foundation to be used as an asset protection vehicle. As well as attempting to prevent the interference of any foreign forced heirship rules (in a similar way to the equivalent Jersey legislation), the Act also purports to make any attack by a creditor in relation to a debtor's transfer of assets into the foundation very difficult. Any such action by a creditor must prove that the transfer was made at a time when the debtor either (i) was actually insolvent or (ii) intended to defraud the creditor. Moreover, the burden of proof in such an action is on the creditor making the allegation and any such actions become absolutely time barred on the expiry of two years from the date of the transfer to the foundation. On the face of it these rules seem to give extremely robust protection to Seychelles foundations and those who settle assets into them. It remains to be seen, however, whether such protection is effective in cases where the relevant assets are held in jurisdictions outside of the Seychelles.
The Seychelles foundation seems to be a lightly regulated vehicle that is likely to appeal to prospective founders who wish to retain a high degree of autonomous control over their foundations and/or who are looking for strong asset protection features. The extent to which regulation, supervision and enforcement by third parties is limited, however, may in due course give rise to concerns by both beneficiaries wanting to ensure that their interests are being honoured and any relevant authorities wanting to ensure that these vehicles are not used for illegitimate purposes.
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.