International Law

Is the Cayman Islands still a Haven for the Unscrupulous

By Eric Rein

It is fair to say that the Cayman Islands are viewed as a suitable place to locate asset protection trusts. That has been true since 1989 when the Cayman Islands passed The Fraudulent Dispositions Law. The effect of that law is to render voidable any disposition made with an intent to defraud that was also undervalued.

Intent to defraud has been defined to mean wilfull intention to defeat an obligation owed to a creditor. Undervalue means no consideration or for significantly less than the value of the property being disposed. Thus, a transfer is safe from attack unless the creditor, who has the burden of proof, can show an intent to wilfully defraud then existing creditors. However, it is sufficient to show general intent to defraud, not specific intent.

There are two other important aspects of the law. First, the limitation period is 6 years after disposition. Second, if the court is satisfied that a trustee has not acted in bad faith in receiving the property, then the trustee will be able to be paid its costs in defending the proceeding and in administering the trust. also, a beneficiary who receives a distibution properly made from the trust is entitled to retain that property if he has not acted in bad faith.

The Cayman islands are still an attractive jurisdiction in which to locate asset protection trusts provided they are established before the claims arise. But, tortious liability can still be pursed if the creation of the trust was intended to avoid pending claims. A creditor needs to understand, however, how to avoid those tranfers under the laws of the Cayman Islands.

Full post as published by International Asset Recovery Law Blog on May 28, 2008 (boomark / email).