Grand Court Of The Cayman Islands Looks To Insolvency Concepts In Trustee Blessing Application

• Published date: 27 April 2023
• Subject Matter: Corporate/Commercial Law, Wealth Management, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Wealth & Asset Management, Trusts
• Law Firm: Ogier
• Author: Christopher Levers and Jordan Constable

Over the past two years, there has been an interesting trend of courts, in certain circumstances, borrowing from principles of insolvency law when determining analogous questions of trust law. Most recently, the private wealth industry has seen this very application in connection with the now infamous proceedings relating to the trust known as the Ironzar II Trust¹.

As a pre-eminent jurisdiction for both trust and insolvency disputes, it is unsurprising that the Cayman Islands has seen a number of decisions which explore this very nexus between trusts and insolvency law.

Indeed, late last year, the Grand Court did so when considering the novel issue of a trustee's ability to use trust assets, which may be the subject of third-party proprietary claims, to meet its fees and expenses.

Background

In In the Matter of the X Trust and the Y Trust², A Limited, in its capacity as trustee of two Cayman Islands trusts, sought orders relating to: (1) payment of its fees and expenses including those already incurred and those already paid, as well as those to be incurred in the future (2) the sale of two trust assets to provide liquidity to, inter alia, meet those fees and expenses and (3) for its costs of the application to be paid out of the trust fund of the two trusts.

At first blush, this seems like an entirely usual fact pattern and the relief uncontentious. However, matters were complicated by the fact that there existed a potential proprietary claim over the trust assets. As such, it was not clear whether the trustee could use assets, which may well not ultimately be trust assets, to meet its fees and expenses. Accordingly, the trustee sought directions from the Court.

The law

The Court gave useful guidance on two principal issues (1) the Court's supervisory jurisdiction to bless decisions proposed by a trustee faced with difficult circumstances and (2) the impact of a trustee's ability to use trust assets to meet its fees and expense when it has been put on notice of a potential third-party proprietary claim against those assets.

The Court's supervisory jurisdiction

Section 48 of the Trusts Act (2021 Revision) provides that a trustee may apply to the Court for an opinion, advice or direction on any question concerning the management or administration of the trust and provides that, where the Court "blesses" a trustee's proposed decision pursuant to this provision, the trustee acting upon that blessing is deemed to have discharged its duty as trustee in...