Do Trusts Not Work? Are Trust Assets No Longer Safe?

Law FirmCharles Russell Speechlys LLP
Subject MatterCorporate/Commercial Law, Corporate and Company Law, Trusts
AuthorMs Silvia On, Ian Yeung and Edward Birrell
Published date25 April 2023

A closer look at the Singapore High Court's judgment in La Dolce Vita Fine Dining Company Limited v Zhang Lan and others [2022] SGHC 278

Introduction

Zhang Lan (Ms Zhang) is one of China's most successful businesswomen. She came under intense media scrutiny in 2015 after private equity group CVC Capital Partners won a court order in the US to freeze her assets. The US District Court ruled that in the case of La Dolce Vita Fine Dining Company Limited v Zhang Lan, the proceeds from the sale of a New York apartment owned by Ms Zhang and her company belonged to La Dolce Vita.

Now, after recent decisions in the Hong Kong and Singapore courts, various property that Ms Zhang contended were assets of a family trust has been recognised as her personal property and creditors have been granted authorisation to take enforcement measures against those assets. The judgment gives rise to fresh concerns about the viability of trusts and how safe trust assets are from the advances of creditors.

The recent case in Singapore of La Dolce Vita Fine Dining v Zhang Lan and others [2022] SGHC 278 highlights the importance of the effective formalities of the establishment of trusts, the appropriate management of them and the need for proper and continued legal advice to preserve the effectiveness of structures in the face of creditor claims.

Background

The background facts are as set out below:

  • Ms Zhang was the owner of two companies incorporated in the British Virgin Islands (the BVI Companies), which were the second and third defendants in the case. She was also previously the owner of Success Elegant Trading Limited (SETL), the fourth defendant SETL had bank accounts held in its name, one at Credit Suisse AG and one at Deutsche Bank AG (the Bank Accounts).
  • In 2013, La Dolce Vita (the Plaintiff) acquired shares in companies beneficially owned by Ms Zhang which ultimately held the South Beauty chain of restaurants in mainland China. The proceeds of sale totalling US$254 million were paid to her account with Bank Safra Sarasin Hong Kong. There has since been an underlying dispute between La Dolce Vita and Ms Zhang concerning the acquisition.
  • During the period of March 2014 to November 2014, payments totalling US$142 million were made from the account with Bank Safra Sarasin Hong Kong to SETL's Credit Suisse account and from this, transfers totalling US$85 million were made to SETL's Deutsche Bank account.
  • In June 2014, Ms Zhang established a Cook Islands family trust known as...

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