Asset protection practitioners are acutely aware of the decision of Justice Robert French in” ASIC in the matter of Richstar Enterprises Pty Ltd v Carey (No 6) [2006] FCA 814 and the possible far reaching implications of that decision on the security and protection to assets held in a trust.

In summary the Richstar case involved a request by ASIC for the appointment of a receiver in relation to assets in the defendants ‘discretionary family trusts. French J accepted the argument by ASIC that the defendants had a contingent interest in the discretionary trusts as in all practical terms they controlled the trust.

He described three scenarios where he stated he would be willing to consider extending the receivers orders to cover “expectant interests” in a trust such that it would be considered property for the purposes of the definition of property in Section 9 of the Corporations Act.

These were:
1. A Trust where the defendant is a beneficiary, and a director and secretary of the corporate trustee and the trust confers a discretion to distribute to targeted beneficiaries to the exclusion of others (a discretionary trust).

2. A trust where the defendant is a trustee and beneficiary where the defendant had a discretion to distribute at least 39% of income or capital to a targeted beneficiary.

3. A trust where the defendant is a beneficiary and the defendant also has the power to remove or appoint trustees ie. (a principal or guardian)

It is clear that the locked door of asset protection previously offered by trusts has a crack in it as a result of this decision. It is arguable as well that the principles enunciated in this case will cause a chip in the corporate veil of protection previously enjoyed by company directors.

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Whilst that decision was given a narrow interpretation in the Supreme Court of New South Wales in Smith Public Trustee v Smith [2008] NSWSC 397 it currently remains as authority should judges in future court decisions choose to follow it.

To this author it is clear that regardless of the future treatment of the Richstar case, an alternative asset protection strategy must be implemented if practitioners are to provide their clients with real asset protection that works.

I invite practitioners to seriously consider the advantages and the security that offshore asset protection strategies will provide to their clients. To do this, practitioners need to be aware and to accept that there is no illegality in using the laws of another jurisdiction to secure a client’s financial position and protect their assets.

Under the media spotlight
Selective bad press and disinformation has clouded a real and proper understanding of what “offshore” really is.

By the use of clever word association in damning press releases and the like, the concept, when mentioned, can immediately conjure thoughts of drug dealers, money launderers and international terrorists in the minds of the ignorant.

When astute investors talk about ‘offshore’ it generally means a jurisdiction different to the one where you are, i.e. outside your own country.  To an American, Canada might be considered offshore and to an Australian it might be New Zealand although I do not necessarily recommend New Zealand as on offshore jurisdiction for Australians.  It simply means another jurisdiction from the one you are currently residing in.

Offshore is not a dirty word even though paranoid governments have been busily promoting the idea that this is where tax evasion is practiced.  After all, when people go offshore, governments are often not able to track their earnings or attack their assets.

Thus it is most often pure psychological propaganda, often generated by governments that make the concept of ‘offshore’ sound illegal.  Nothing could be further from the truth.

In fact offshore is the worldwide market place where commerce and free enterprise still rein unhindered and where governments have yet to put up barriers in order to restrict and control trade.  Going offshore simply means finding a different legitimate avenue to do business and obtain protection while doing so. 

Offshore is a place where you can shield income, profits and other capital from unwanted interference and protect your privacy. 

WHY GO OFFSHORE?
The main reason to go offshore might be to avoid the prying eyes of bureaucrats. 

However, there are quite a few other reasons.  You may prefer to do your international business offshore in order to avoid a punitive taxation levy.  Others conduct their international business offshore because it simplifies their operation and does not require scores of paper forms to be filled out and endless accounting. 

It is important to dispel the myth that the ”offshore world” is only for the rich and famous and of no benefit to the average person, that it is too complicated and you won’t understand it or that it is too expensive and  you can’t afford it.

Almost everybody can enjoy the benefits of going offshore, be it as simple as opening a bank account overseas, or operating an internet business using an overseas domiciled company attached to an overseas bank account or fully operating a business enterprise offshore.

The average person is generally unaware of the benefits derived from going offshore.

 An International Business Corporation (IBC) or a Foundation or a simple Offshore Trust can own your clients intellectual property, enter into  lease or hire agreements with your clients or lend money at interest and take security.

I am sure practitioners will see the many benefits once they turn their mind to the concept of going offshore.

Hiding your assets is not at all illegal.  Making sure that nobody can get at what you legitimately earned is no crime. 

You do not have to live offshore in order to take advantage of the worldwide marketplace or the protection and simplicity offered by legitimately structuring your business affairs in a jurisdiction outside of the one that you live in.

You do not have to live offshore to enjoy the benefits, security and privacy inherent in the ownership of a bank account in a country outside your country of domicile in the name of an international business corporation over which you have the ultimate control.

In order to familiarise yourself thoroughly and properly, it is necessary to understand the reasons first and, consequently, the techniques, to go offshore. 

Four Primary Reasons for Going Offshore
1. Asset Protection - A  hedge  against creditors.  By transferring the domicile of your assets (not necessarily yourself) those assets are protected against a claim from your creditors as they have no power to act in a different jurisdiction.  The laws they use against you do not apply.

Your assets are secured.

By securing your assets in a jurisdiction where privacy laws are tantamount and the laws of a”foriegn country” are not recognised your personal information remains secure.

Offshore obviously means that you deal with a different jurisdiction.  These jurisdictions are indeed unlike the one you are in and often quite confusing to the novice. 

What this means is simply that the legal ways whereby you approach your affairs must be structured according to local laws and cannot be compared to those where you live.

2. Privacy - What hangs us is the information that we give away and that is available against us. By trading and banking in a different jurisdiction with powerful and enforceable privacy laws your personal information remains secure.

This is particularly important in relation to your financial and banking structuring. 

Imagine a banking jurisdiction where the law clearly states that it is an offence for banks to disclose personal customer information? How vastly different is that to your present bank?

In this country as in many others, the financial institutions and many private organisations are compelled to report their customer’s personal information and details including financial information. In most so called developed countries the laws are in place to enforce release of this information but in the correct off shore jurisdiction the laws are in place to protect this information.

3. Tax Minimisation - By earning income offshore through a separate entity the taxable income your client earns in their country of residence is reduced.  In no way is it being suggested that you should counsel your clients to break any taxation laws applicable to them. 

However, correctly structured in the right jurisdiction, your clients can and will legitimately and legally reduce their tax liability.

4.  Access World Markets - By setting up your clients business and financial facilities in the appropriate jurisdiction, your client is able to access worldwide markets and substantially higher returns that may not necessarily be available domestically, and does so with much greater privacy.

“How To” Go Offshore

 The main question is always: “what to choose and how to do it”.  This question can only be answered by an expert.

I do want to stress how important it is to get well researched and current advice for your client and this should be at an early stage. Domiciling a structure in the wrong jurisdiction can be expensive and very inconvenient. Choosing the right bank is vitally important.

You need to be able to properly advise your client about the strength and resilience of a countries privacy laws and what agreements (treaties) it might have with other countries, particularly Australia.

Going offshore is not difficult to do.  It is the way you do it, avoiding the pitfalls and expensive mistakes and time delays, which will be important to your client. It is not a short term experience so it needs to work and be the right solution to your clients business and personal requirements.

Bruce Sock hill is a solicitor of the Supreme Court of Queensland and the High Court of Australia. He has lectured extensively both domestically and internationally in the areas of asset protection