The new laws were innovative and ground-breaking at the time, their success reflected in the number of jurisdictions that have since copied them in part or in whole. Bankruptcy – no Cook Islands international trust or any settlement on it shall be void or voidable in the event of the settlor’s bankruptcy in his home jurisdiction. Spendthrift beneficiaries – any interest in trust assets given to a beneficiary shall not, during their lifetime, be alienated or pass by bankruptcy, insolvency or liquidation or be seized or taken in execution, by process of law. The most significant trust law changes, however, were with respect to a creditor’s action against a transfer or transfers to a Cook Islands international trust, strengthening the position of the settlor in protecting his/her wealth. In that regard, the starting point was to abolish the Statute of Elizabeth.1 From an asset protection point of view it is extremely important that trust assets are not in a jurisdiction which remains subject to the Statute. In its place, rules were enacted with statutory limitation periods providing certainty in determining whether a disposition to a Cook Islands international trust is fraudulent or not. Those rules are detailed in s 13B of the ITA and include provisions deeming settlements and dispositions of property not to be fraudulent against a creditor in specified circumstances, as follows: - Settlements or transfers made prior to that creditor’s cause of action accruing will not be fraudulent (s 13B(4)); - Settlements or transfers made later than two years after that creditor’s cause of action accrued will not be fraudulent (s 13B(3)(a)); - Where settlements or transfers are made within two years of that creditor’s cause of action accruing, but that creditor fails to bring an action in a court of competent jurisdiction before the expiry of one year from the date of settlement or transfer, that settlement or transfer will not be fraudulent (s 13B(3)(b)). Section 13B(8) of the ITA provides that the date of the cause of action “shall be, the date of that act or omission which shall be relied upon to partly or wholly establish the cause of action”. Where there is more than one act or a continuing omission, the date shall be the date of the very first act or when the omission commenced. Where a creditor’s claim is not precluded by the above deeming provisions, then the creditor must make a claim in the High Court of the Cook Islands within two years of the date of settlement or transfer of the property in question to the trust (s 13K(2)). In summary, a creditor must commence an action in a court of competent jurisdiction within one year of the date of the disposition he is claiming against and in the Cook Islands High Court within two years of that same disposition. These rules provide a great deal of certainty for advisers and clients alike as well as the existing and future creditors of those clients. Where a disposition is within the relevant periods, the creditor may be in a position to challenge that disposition as having been fraudulent. However, in doing so he/ she must prove beyond reasonable doubt that the disposition was made with the principal intent to defraud that creditor. The standard of proof is therefore the criminal standard. Under the ITA, where a fraudulent disposition is deemed to have taken place, it will not void the trust completely. The court will only allow the creditor access to the transfer or disposition the subject of the creditor’s claim. Accordingly, other transfers to the trust and the trust relationship itself will remain on foot Please tell us about the Limited Liability Companies Act 2008 and Foundations Act 2012. How have these laws enshrined asset protection in the Cook Islands? Since the amendments to its trust laws, the Cook Islands has enacted limited liability company and foundation laws 50 LAWYER MONTHLY MAY 2023
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