Ian Watts – providing legal services in Gibraltar since 2002
Foundations have their roots in the civil law tradition
Foundations have their historical roots firmly embedded in the Civil Law legal tradition. Originally, they were established in Medieval Italy to protect the interests of the Church, and thereafter, for public and charitable purposes. Through the ingenuity of the Civil Lawyers, the Civil Law Foundation then began to be used as a private investment vehicle to safeguard the financial interests of the founder and his family and future generations thereof.
By the twentieth century, in several leading offshore Civil jurisdictions – in the first instance (and most notably Liechtenstein), and thereafter, in Panama (1995); the Netherlands Antilles (1998) and more recently, in Malta (2017), laws have been passed into their Civil Codes to assist wealthy individuals in protecting their assets through the mechanism of the Private Foundation.
Private Foundations, Trusts & Companies
The concept of the Private Foundation is unbeknown to the Common Law. The Common Law has always been familiar with the Anglo-Saxon type trust. The Common Law therefore requires legislation to be passed to recognise the very existence of a Private Foundation.
There are notable differences between a Private Foundation and a Trust. Those differences are particularly interesting, but presently outside the scope of this article. Suffice to say for the present, that there are similarities between the two; and furthermore, the Private Foundation does also shares features with the Private Limited Company. It is often said that the Private Foundation is somewhat of a ‘’hybrid’’ between the Trust and a Private Limited Company.
Despite the differences between Private Foundations and Trusts it is nevertheless trite to say that via their shared suitability and flexibility to individual circumstances, they are particularly attractive and beneficial conduits for the management of wealth and prudent estate planning: however, as a word of caution, great care and considered legal advice on the facts of a given scenario concerning the establishment of a Private Foundation should always be taken.
Private Foundation Legislation in Common Law Jurisdictions
The Principality of Liechtenstein can be said to be the leading offshore jurisdictional market on the establishment of Private Foundations. In more modern times however, many leading offshore common law jurisdictions have enacted Statutes geared at competing with their civil law counterparts in the field of Private Foundation Law– take for example: The Bahamas (2004); Jersey (2004); Antigua & Barbuda (2008); The Isle of Man (2011); Barbados (2012); and St. Kitts & Nevis Islands (2012); and finally, in Gibraltar in 2017 (Private Foundations Act 2017). The legislation promulgated in these offshore jurisdictions is an ostentatious display of an ingenuous combination of trusts and company law principles. Gibraltar Law, as will be seen, has accordingly adopted suit.
Private Foundations Act 2007 – Gibraltar
The Private Foundations Act 2007 [‘’PFA’’] received Royal Assent in Gibraltar on the 06.14.2017. Under the PFA, a Foundation established and registered under the Act shall be: –
- A legal entity;
- Established in Gibraltar;
- Able to hold and deal with property in its own name as an absolute legal owner;
- And able to sue and be sued in its own name [s.3 (2) PFA].
Initial Points to Note:
- The PFA thus preserves the principle of the separate legal personality of a Private Foundation which is a fundamental distinction to be drawn from that of the Anglo-Saxon Trust Model (which possesses no legal personae);
- A Foundation ‘’may be established for any purpose or purposes which are capable of fulfillment and which are not unlawful, immoral or contrary to public policy in Gibraltar’’ [s.4(1)]; and
- By s.4(2), ‘’[t]he permitted purposes and objects of a Foundation shall not include–
- the carrying on of a commercial or trading activity unless that activity is incidental to the attainment of its purpose or objects;
- the carrying on in or from Gibraltar of any activity in respect of which a licence under any other Act is required in the absence of that licence having been granted to the Foundation”.
Furthermore, an object of a Foundation may, but need not be, charitable or philanthropic [s. 4(3)].
Parties & Constitution
- The Founder – is the person (or group of persons) who establishes the Foundation. His position is analogous to the Settlor of a Trust. His powers are firmly laid down in s.23 PFA with, inter alia, an embargo on certain powers that he can reserve to himself.
- The Foundation Councillor(s) – which form the Foundation Council, are entrusted with the overall every day management of the Foundation save that at all material times, a Private Foundation registered under the Act must have a Councillor which is a corporate entity with a Class VII Licence issued under the Financial Services (Investment and Fiduciary Services) Act 1989 within the Foundation Council. The powers, obligations and limitations of liability of the Councillor(s) are neatly laid down in the Statute.
- The Guardian – may be appointed if the Constitutional documentation so provide. His powers, duties and liabilities are also legislated by the Act. His position is somewhat analogous to that of a Protector in the context of an offshore Trust.
- The Beneficiaries – those entitled to benefit from the assets of the Foundation. Note that a Founder, Councillor or Guardian of the Foundation may also be a beneficiary. The constitutional documents must also state whether a beneficiary is an Enfranchised Beneficiary or Disenfranchised Beneficiary. The former is a beneficiary who is entitled to certain benefits laid down in s.33 PFA such as the power to copies of the Constitutional documents, disclosure or records and accounts as well as locus standi to advance an application to the Supreme Court as permitted by the Act [See: further below]. PFA s.34, is a default provision in that should the constitutional documents not bestow the beneficiary with the rights and privileges under s.33, that beneficiary will be deemed for the purposes of the Act to be a disenfranchised beneficiary.
The Charter provides, inter alia, for the name of the Foundation, its purposes or objects, that the governing law shall be that of Gibraltar, the powers of amendment to the Charter, the manner of designating beneficiaries and addresses for service of documentation regarding the Foundation, should the address for service be different from the registered office address.
The Rules provide, inter alia, for the functions of the functions of the Councillors, details of their appointment, removal and resignation, details for the appointment of a Guardian, provisions for the removal of the latter and former officers, remuneration of the same, the manner in which further endowments of property can be made, to include the addition and removal of beneficiaries, either revocably or irrevocably.
As will be noted, the Constitutional documents of the Foundation provide a comprehensive framework in the overall administration, management and powers as to the underlying assets.
As in other Common Law offshore jurisdictions, the PFA provides with a system of registration for Foundations. In Gibraltar, the Foundation is registered with the Registrar of Companies House, Gibraltar who maintains a register of Foundations so registered under the PFA.
The establishment of a Gibraltar Private Foundation is essentially as follows:
- The Founder(s) makes an initial endowment of property to the Foundation (this is an outright transfer of particular assets to the Foundation) – the endowment, once effected, is irrevocable;
- The Founder(s) subscribes his name to the Foundation Charter;
- As is mentioned above, there is filed with the Registrar of Companies House – inter alia, the Foundation Charter, details of the endowment and other matters specified in s.13 PFA; including; and
- Payment of the requisite fee is made to the Registrar.
Once the Foundation Charter and Foundation Rules are registered with Companies House, they bind the Foundation entirely.
Unlike a Trust Deed which is a private document, the Foundation Charter therefore remains available to public inspection on the Statutory Record of Foundations kept at Companies House, Gibraltar.
The Foundation name must end with the noun ‘’Foundation’’ or an abbreviated form of the latter, being ‘’Fdn’’. The PFA also lays down strict regulations on the particular name assigned to the Foundation; prohibitions include where, for example, the use of the name could constitute a criminal offence or it is a name which is offensive or undesirable [see: s.19 PFA].
The Foundation must also have a registered office address in Gibraltar. Upon the Registrar being satisfied that all the requirements of s.13 PFA are satisfied, he will return to the Foundation at its registered office address, a Certificate of Establishment detailing, inter alia, the date of its registration and registration number on the books kept at Companies House.
The PFA also lays down requirements for the filing of annual returns with the Registrar as well as a duty to notify the same of change in the particulars of the Foundation so registered at Companies House, Gibraltar.
There are also strict provisions on the filing of accounts of the Foundation which must in all material respects, comply with IAS Standards. The Foundation Council have a collective statutory obligation to ensure that all annual accounts are drawn up and filed with the Registrar of Foundations.
Assistance by the Supreme Court of Gibraltar
The PFA, Part VI confers jurisdiction and powers of the Supreme Court of Gibraltar, in its Chancery Jurisdiction (in a similar manner to its supervisory jurisdiction over Trusts), to deal with matters concerning a Private Foundation registered under the Act as well as any other Foundation so long as the qualifying criteria are met, viz:
- a Councillor or Guardian of that Foundation is resident in Gibraltar; or
- any of the property of that Foundation is situated or administered in Gibraltar [s.43 PFA].
A wide jurisdiction is conferred upon the Court to adjudicate upon certain matters such as, inter alia, the validity, interpretation and effect of the Constitutional documents and the nature and extent of beneficial rights.
The governing law of the Foundation is the law of Gibraltar and for matters before the Chancery Jurisdiction it is expressly stipulated that ‘’the law of Gibraltar’’ in respect of proceedings brought under Part VI does not include the Gibraltar Rules of private international law, except as otherwise permitted by the Act.
Part VI also contains certain savings for any EU Regulations, EU Directives or International Conventions to which Gibraltar may be bound, which contains rules about the jurisdiction and enforcement of foreign Judgments in relation to questions the Supreme Court has jurisdiction to hear under the Act.
There is also the right for the Councillor or indeed the Guardian to apply to the Court for an Order for directions as to how he ‘’should or might act in any of the affairs of the Foundation’’ (s.47).
Re-Domiciliation of a Private Foundation
In the case of a Trust, changing its jurisdiction is fairly straightforward: however, in the case of a Foundation, it needs to be re-domiciled.
An overseas Foundation can be registered in Gibraltar provided:
- It is permitted by the laws of the foreign jurisdiction wherein it is situate, to re-register in Gibraltar as a Private Foundation; and
- It has complied in all material respects of that law in relation to its registration locally.
The PFA does nonetheless circumscribe certain foreign Foundations that cannot re-register in Gibraltar; these include: e.g. where the Foundation is bankrupt or where an application has been made to an overseas Court (or indeed the Supreme Court of Gibraltar) to place the Foundation into liquidation or otherwise have it be declared insolvent.
The procedure for the re-registration of an overseas Private Foundation is laid down in Part VIII PFA and involves, inter alia, an application to the Registrar of Companies House Gibraltar in the prescribed form, with all the requisite particulars and certifications, including payment of the prescribed fee.
Dissolution of the Private Foundation
A Gibraltar Private Foundation can be terminated and dissolved by the Foundation Council upon certain happenings prescribed by Part X of the PFA. These include, inter alia, where the Foundation expires (because it was for limited existence) or by virtue of a happening so provided for in the Constitutional documents; a lack of property or assets underlying the entity or on application on statutory grounds so permitted – by the Foundation Council, Guardian or Beneficiaries, including an application for winding-up by the latter, including a creditor of the Foundation.
The Gibraltar Private Foundation is probably more likely to appeal to clients from a civil law background given that the Trust concept is not something with which they are familiar and something which, they very often grapple with.
The PFA is nevertheless a modern statutory framework that bestows Gibraltar with the opportunity to attract international clients to its offshore industry, with a view to creating a safe-habour for their wealth via the instrumentality of the Private Foundation.
Given the novelty of the PFA, there are currently no decisions by the Gibraltar Supreme Court or superior courts of record thereof, on terms of the PFA, or indeed on the interpretation of the Constitutional Documents of the Private Foundation: however, Gibraltar being a Common Law jurisdiction, decisions of Commonwealth Courts and Common Law Offshore Jurisdictions nevertheless carry persuasive effect. It will be interesting to see how, in future, the Gibraltar Law Courts will interpret the terms of the constitutional documents of Gibraltar Private Foundations in comparison to the Courts of Law of our Civil Law counterparts.
For further information on Gibraltar Private Foundations, please contact Ian Watts, Barrister-at-Law & Acting Solicitor.
©Ian Watts, Barrister-at-Law, 2017-2023. All Rights Reserved.
 Personen – und Gerssellschaftsrecht, 26 January 1926 (later reformulated in 2009).
 Ley de 12 de Junio de 1995 por la cual se regulan las Fundaciones de interes privado
 http://www.gibraltarlaws.gov.gi/articles/2017-03o.pdf [Full Text of the Statute].
 http://www.gibraltarlaws.gov.gi/articles/1989-47o.pdf [Full Text of the Legislation].
 See: Companies House, Gibraltar Guidance Circular No.34/2017 for some general guidance on the PFA. Hers the link: https://www.companieshouse.gi/publications/C0034.pdf