This feature features Cook Islands Finance CEO Alan Taylor who takes a look at the legislative measures which enable the Cook Islands to remain competitive in the wealth protection arena.
Why is the Cook Islands considered a jurisdiction to choose for asset protection?
Cook Islands’ offshore jurisdiction has the ability to pass legislation that meets the needs of modern society. This ability has allowed the Cook Islands to focus on an important, but often neglected, aspect of wealth planning: the protection of assets. It is now an industry leader for the preservation and protection wealth. Cook Islands trust, foundation and corporate laws have a wealth-protection framework that benefits all HNWIs.
What makes Cook Islands Trusts unique?
The Cook Islands trust laws are derived from English Common Law, with modifications made by the International Trusts Act 1984. In 1989, the ITA was revised to include comprehensive asset protection provisions. These were designed to protect individuals whose wealth may be threatened by those who might try to seize it through force, litigation, or legislation, whether they are using illegal, unethical, or immoral methods. These laws were groundbreaking and innovative at the time. Their success is reflected by the many jurisdictions who have copied them, in part or whole.
The ITA includes the following features for asset protection:
Foreign judgements – A Cook Islands court won’t recognise any judgment based on any law that is inconsistent with the ITA, or which relates a matter governed under the Cook Islands laws. A claim against the assets of a Cook Islands International Trust must be reviewed.
commenced de novo in a Cook Islands court.
Forced inheritance No Cook Islands international trusts, or any settlements on them, shall be null or voidable. Nor shall the capacity of the settlor, be questioned in the event that such trusts or settlements may undermine the heirship of any person who is related to the settlor.
Bankruptcy– No Cook Islands International Trust or any settlement based on it will be null or voidable if the settlor is bankrupt in his home jurisdiction.
Spendthrift Beneficiaries Any interest in trust assets granted to a beneficiary may not be alienated, or passed by bankruptcy, insolvency, or liquidation, or be seized, or taken by law in execution.
In this regard, the starting point was to abolish the Statute of Elizabeth. In this regard, it was important to eliminate the Statute of Elizabeth. [1]From the perspective of asset protection, it is very important that trust assets do not remain in a jurisdiction that remains subject to the Statute. Instead, new rules with statutory limitations were adopted to provide certainty when determining whether or not a disposition of trust assets to a Cook Islands International Trust is fraudulent.
Cook Islands trust, foundation and corporate laws have developed a framework for wealth protection that benefits all HNWIs.
These rules are detailed at s. 13B of ITA. They include provisions that deem settlements and dispositions as not being fraudulent in certain circumstances.
- The act of fraud is not committed by settlements or transfers that are made before the creditor’s claim has accrued (s. 13B(4));
- Fraudulent settlements or transfers that are made more than two years after the creditor’s claim accrued (s. 13B(3)(a);
- Settlements or transfers made within 2 years of the creditor’s claim naccruing will not be considered fraudulent if the creditor does not bring a suit in a court with jurisdiction to do so before the end of the year following the settlement or transfer.
According to Section 13B(8), “the date of the cause” is the date that an act or omission was committed or commenced that will be used as a basis for establishing the cause. The date is the first act of an omission or the beginning date.
If the above provisions do not preclude a creditor from bringing a claim, the creditor may bring a claim before the High Court of the Cook Islands in two years after the settlement of the matter or the transfer of the asset in question to the Trust (section 13K(2)).
Summary: A creditor has to commence a claim in a court with jurisdiction within a year from the date of disposition against which he claims, and in the Cook Islands High Court in two years. These rules offer a high level of certainty to both advisers and their clients, as well as existing and future creditor of these clients.
If a disposition occurs within the relevant period, the creditor can challenge it as fraudulent. To do so, he/she will need to prove beyond reasonable doubt the disposition was made primarily with the intent to defraud the creditor. It is the criminal standard that determines what standard of proof to use.
According to the ITA, if a fraudulent disposition has been deemed, the trust will not be void. The court will only give the creditor access the transfer or disposition that is the subject of their claim. The trust relationship and other transfers will continue to exist.
These laws were groundbreaking and innovative at the time. Their success is reflected by the number of jurisdictions who have copied them, in part or whole.
Tell us about the Limited Liability Companies Act 2008. Also, tell us what you know about Foundations Act 2012? These laws have protected assets in the Cook Islands.
Cook Islands’ limited liability company laws and foundation laws have been amended since the trust law amendments. These laws also include a number asset protection features.
Limited Liability Companies Act of 2008
The Cook Islands Limited Liability Companies Act (‘LLC Act”) contains specific features that are designed to protect and enhance a client’s assets when they hold, manage and invest through a Cook Islands Limited Liability Company (‘CI LLC”).
- A creditor’s only and exclusive remedy against a membership in a CI LLC, is to request a charging order.
- A charging order only entitles a debtor to receive distributions from the CI LLC in relation to a membership interest. This is not to construed to be a lien or assignment on a membership or to entitle a creditor to exercise membership rights with respect to that interest.
- A person who has received a charging order does not have the right to interfere with the management of CI LLC or seize, liquidate or dissolve its assets.
- The company can pay the contribution calls that the CI LLC makes on its members from the capital or income it would otherwise distribute to them. The same is true if a charging order was issued on a member’s interests. The creditor does not have a claim if the distribution never reaches the member.
- Cook Islands courts will not recognise foreign judgments that seek to strip a member of a CI LLC from any rights or membership interests.
Foundations Act of 2012
The Act includes a number features of asset protection contained in the ITA. These include foreign judgments and forced heirships rights. But most importantly, it adopts the fraudulent conveyance rules that provide dates and events for creditors to have certainty when claiming against transfers to a foundation.
How has the Cook Islands government worked to make the country attractive in terms of preserving and protecting wealth?
The Cook Islands government, while supporting the offshore industry through laws that develop and enhance wealth, has also adopted laws and regulations in order to ensure that the Cook Islands does not appear on the blacklists of organisations like the FATF and OECD. The Cook Islands government’s commitment in meeting its international obligations, and to ensure that the Cook Islands does not become a target of money laundering, tax fraud, and other financial crimes has cemented the Cook Islands reputation as a jurisdiction for wealth protection and open for business.
Alan Taylor, CEO
P.O. Box 3255, Clarkes Building, Parekura, Rarotonga, Cook Islands
Tel: +682 21175
Alan Taylor currently serves as the interim CEO for Cook Islands Finance. He holds degrees in economics and law from Auckland University, New Zealand. He is also admitted to the New Zealand bar. His work experience includes the international financial service industry in Cook Islands, Jersey, and Singapore. Alan has worked in legal, business and management positions for both public and private organizations. He is a member of STEP and the Institute of Leadership and Management.
Cook Islands Financialis a working name for the Financial Services Development Authority (FSDA), the Cook Islands government agency that is responsible for promoting and developing the financial services industry in the Cook Islands. It aims to raise awareness of the financial services industry on a global scale in order to create and maintain long-term professional and client relationships.
[1] 13 Elizabeth 1 Ch 5 (1571).