Liechtenstein Institute of Professional Trustees introduces out-of-court mechanism to change the administration of domestic structures

In the last years we have seen frequent problems when it came to terminate the business relationship between a client and a Liechtenstein professional trustee for whatever reason and/or the client wished to transfer his business relationship to another trustee. The problem was that it was legally very difficult to force the requested trustee to resign, especially when it came to discretionary structures. Many clients faced the situation in which legal entities were sold to them as being administered always according to their instructions, even in the absence of mandate agreements. The ever increasing fiscal and legal transparency which became more and more important in the last decade provoked the question for many clients, after having declared their respective offshore assets whether to maintain their offshore structures. In many cases clients decided to close down their structures and the Liechtenstein trustee did not follow their respective wish/instruction based on legal reasons such as the argument that e.g. a family foundation cannot be easily terminated since it has to pursue its purpose (to cover the maintenance and livelihood of specific families). Certain trustees in Liechtenstein behaved highly uncooperative in such scenarios which provoked a certain degree of domestic (and lately also foreign) pressure on the industry. In such scenarios, the requested trustee would also refuse to agree to a transfer of the respective entity to another professional trustee (who in the eyes of the client might be more cooperative in regard to their instructions).

After long discussions, the Liechtenstein Institute of Professional Trustees (LIPT) resolved on 28 May 2018 to amend their code of conduct and to implement a mechanism under which a non - contentious procedure will take place in case a client wants to move his/her business relationship to another trustee.

The new mechanism works as follows: in case one trustee notifies another trustee that the administration of an entity shall be transferred to the latter based on a conflict of interest or based on another important reason, a meeting has to take place within 30 days after the respective written request. In case no agreement can be reached, the requested trustee has to inform the board of LIPT within 14 days in writing together with an explanation in regard to the reasons for the refusal. In case he fails to give such explanation, the requesting trustee may inform the board of LIPT. The board examines whether conflict-of-interest or another important reason which justifies the transfer of the mandate exists and issues a recommendation. The non-compliance with the recommendation of the board might constitute an infringement of the code of conduct and lead to disciplinary sanctions.

Finally, the costs in connection with the transfer are to be borne by the requested trustee in case the board is of the opinion that the transfer is justified. If the board is of the opinion that no transfer is necessary, the requested trustee may charge a maximum of CHF 5'000 in fees to the entity.

It remains to be seen, whether this new mechanism will contribute to an effective resolution of many disputes in regard to the transfer of mandates. However, from a client's perspective these new rules are highly welcome to effectively deal with such disputes.

Christoph Bruckschweiger / 7 June 2018