Fraudulent Transfers Act 1736 - Asset Protection?Contact Paul
Several offshore jurisdictions which have enacted asset protection legislation. The concept is well known, but is very misleading.
If the intention to create a trust is there, and the formalities are satisfied, then the assets placed in trust have passed from beneficial ownership of the creator of the trust into the legal ownership of the trustees, who hold for the benefit of the trust beneficiaries. The trust assets are thereby protected. I have yet to encounter the concept of an asset dissipation trust.
Debate has centred upon the English Statute of Elizabeth and the idea that transfers of any kind made with the intention of defrauding others or of depriving others of their just claim to the assets transferred will not be regarded as valid.
The Statute of Elizabeth (13 Eliz, C 5) (an Act passed in the reign of the English Queen Elizabeth I for the protection of creditors against fraudulent deeds of their debtors, repealed by the Law of Property Act 1925; relevant provisions are contained in the Insolvency Act 1986) does not, itself apply to the Isle of Man. However, in 1736 Tynwald enacted legislation which can be seen as broadly equivalent to the Statute of Elizabeth, the Fraudulent Assignments Act 1736. Under the Act, ‘all fraudulent assignments or transfers of the debtor’s goods or effects shall be void and of no effect against his just creditors, any custom or practice to the contrary notwithstanding’.
In the case of Corlett v Radcliffe 1859, a decision of the Judicial Committee of the Privy Council on appeal from the Court of Chancery of the Isle of Man, in which the Committee was asked to construe the relationship between the Statute of Elizabeth and the Act of 1736, Lord Chelmsford delivering the judgement of the Committee stated: “In the course of the argument many cases were cited which had been determined in the English Courts under [the Statue of Elizabeth], but decisions upon this subject are of no practical utility, except where they establish principles which are of general application.
Each case must depend upon its own circumstances, and in all the question is on of fact whether the transaction was bona fide, or was a contrivance to defraud creditors. It may, however, be stated generally that a deed is void against creditors when the debtor is in a state of insolvency, or when the effect of this deed is to leave the debtor without means of paying his present debts. If this is the condition of the debtor, or the consequence of his act, it is not sufficient to render a deed valid that it should be made upon good consideration”.
The matter was later considered more narrowly in the case of Re Corrin’s Bankruptcy 1912: ‘The common law of the Isle of Man is substantially the same as the law of England under the Statute of Elizabeth, and a settlement by a man who is hopelessly insolvent at the time is fraudulent and void’ (per Kneen CR).
The position was clarified in the case In Re Heginbotham 1999 (Common Law Division, 15 February 1999).
The Isle of Man has, quite properly, steered clear of introducing an “asset protection” or “creditor protection” statue. The Isle of Man, one of the most mature jurisdictions in Europe, with a legislative tradition stretching back over a thousand years, has wisely left such fashionable legislation to the newcomer jurisdictions in such places as the Caribbean, which functions almost exclusively at the level of simple “tax havens”.
In Re: Heginbotham (Common Law Division, 15 February 1999) the relief of the Court was sought to recover certain assets that it was claimed had been assigned fraudulently in order to avoid them being exposed to enforcement proceedings in respect of an award of damages. Mr Heginbotham’s Counsel cited as authority the Fraudulent Assignments Act 1736.