Jacob Hugeboom - IBCPIB™ 2009

Intertrust Russia & CIS16.07.09

Effective and Efficient managementof a SPV

Jacob Hoogenboom

16.07.09Effective and Efficient management of a SPV 2

Agenda

Criteria for choosing a management structure

Types of management

Management responsibilities

Improving SPV management

About the Intertrust Group

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Section 1Criteria for choosing a management structure

16.07.09Effective and Efficient management of a SPV

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Issues to consider4 main criteria for choosing a structure

“Effective management”

Internal control

Liability and management obligations

Practicalities


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Issues to consider1) “Effective management”

• The place of effective management is the place where key management and commercial decisions that are necessary for the conduct of the entity’s business as a whole are in substance made

(OECD commentary to the 2008 model convention, article 24)


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[…] it shall be deemed to be a resident only of the State in which its place of effective management is situated.

OR

[…] the competent authorities […] shall endeavour to determine by mutual agreement the Contracting State of which such person shall be deemed to be a resident for the purposes of the Convention […]

(OECD 2008 model convention, standard and optional article 3)


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Competent authorities […] would be expected to take account of various factors, such as where the meetings of its board of directors or equivalent body are usually held, where the chief executive officer and other senior executives usually carry on their activities, where the senior day-to-day management of the person is carried on, where the person’s headquarters are located, which country’s laws govern the legal status of the person, where its accounting records are kept, whether determining that the legal person is a resident of one of the Contracting States

(OECD commentary to the 2008 model convention, article 24.1)


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Issues to consider2) Internal control

A process within an organization designed to provide reasonable assurance regarding the achievement of the following objectives:

The reliability and integrity of information

Compliance with policies, plans, procedures, laws, and regulations

The safeguarding of assets

The economical and efficient use of resources

[…]


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Section 2Types of management


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Types of managementDifferent types of directors

ExternalManagement

Personal directorships Personal Management

Corporate directorships Corporate Management

External directors


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Types of managementExamples of common board structures

Client directors only

Local (corporate) director only

Alphabet board with personal managers

Mixed board with external directors


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Types of managementTypical legal framework (1)

Typical agreement framework:

A general indemnity agreement between the BO and the trust company

A management agreement between the trust company and the SPV

In case of an orphan structure:• Letter of wishes from the BO• Specific articles of incorporation / trust deed• Letter of intend from the directors


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Types of managementTypical legal framework (2)

Typical agreement provisions:

The trust organization and the nominee directors are typically indemnified, except for gross negligence and willful misconduct

The BO typically has the right to issue instructions, but the nominee directors may chose not to execute these in certain circumstances

Nominee directors typically retain the right to exit the structure at short notice / instantly


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Section 3Management responsibilities (the case of the Netherlands)


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Management responsibilityGeneral responsibility (BW 2:9)

Each director is obliged to reasonably fulfil his management task

Failure to do so may lead to personal liability, even in case of a failure of the board as a whole


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Management responsibilityProper administration (BW 2:10)

Management is responsible for proper documentation proceduresAll relevant documents are to be kept for at least 7 yearsResulting annual accounts should be prepared within 6 months after the end of the financial year

The administration should be kept in such a way that the rights and obligations of the company are known at all times


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How can we accomplish proper administration?


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Management responsibilityIn case of bankruptcy (BW 2:248)

It has not reasonably fulfilled its responsibilitiesIt can be reasonably assumed that this is an important cause of the bankruptcy

However,The liability is limited to the past three yearsThe court may reduce unreasonable claims on the management

The management can be held personally liable in case of bankruptcy if:


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Management responsibilityFor proper accounting (BW 2:249)

The management can be held personally liable if annual accounts or interim figures provide a misleading view of the state of the company

Management can also be held liable if it fails to publish annual accounts on time


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Section 4Improving SPV management


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Improving SPV managementBoard composition style

• What level of substance do I need?• How much control would I like to have?• Do we have in-house directors who are willing to take up the

responsibilities and have sufficient local knowledge?• Practicalities

• Type of structure (I.e. joint venture or subsidiary)?• Price level

Client only, local only, mixed (alphabet), mixed (external directors)


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Improving SPV managementChoosing local directors

Key issues to consider:

• Reputation and reference client portfolio• Experience with doing business in your home country• Industry specific experience• Frequency of contact / board meetings• “Gut feeling”

How to choose the right director?


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Improving SPV managementAdaptations at HQ

Key issues to consider:

• Clear allocation of responsibility• Demand regular financial reporting from the trust organization• Perform annual substance audit• Keep copies of key documents• Keep track of key filing, board and shareholder meeting dates

How to ensure proper control at HQ?


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Improving SPV managementImproving substance

• Accounting & tax compliance• Legal & corporate secretarial work• Follow up on obligations and correspondence• Maintain an active bank account locally

• Consider hiring a local employee• Consider hiring dedicated local office space

Increasing the level of activity in the offshore jurisdiction


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Section 5About the Intertrust Group


The story about Intertrust

Intertrust is a quality

leader in the Trust &

Corporate Services

domain, providing a

broad range of

commercial, legal, fiscal

and administrative

services to companies

and high net worth

clients.

Our dedication to guiding our clients

working side by side to reach their goals

has made us leaders in the industry since 1952


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• Belgium

• China

• Denmark

• Guernsey

• Hong Kong

• Ireland

• Isle of Man

• Luxembourg

• Netherlands

• Netherlands Antilles

• Poland

• Singapore

• Spain

• Sweden

• Switzerland

• Turkey

• United Kingdom

• British Virgin Islands

• Cayman Islands

• Cyprus

• Mauritius

• Jersey

• Etc.

We can provide services in the following jurisdictions: We can also assist in: Representative offices in:• London

• Dubai

• New York

• San Francisco

• Moscow


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Thank you

520540.0003 © 2009 Intertrust Group Holding S.A.

This document is provided by Intertrust for information purposes only and does not constitute an offer, invitation or inducement to contract. The information herein does not constitute legal, tax, regulatory, accounting or other professional advice and therefore one should seek appropriate professional advice before considering a transaction as described in this document. No liability is accepted whatsoever for any direct or consequential loss arising from the use of this document. The text of this disclaimer is not exhaustive, further details can be found at: http://www.intertrustgroup.com/disclaimer.html

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Intertrust Russia & CISJacob Hoogenboom

[email protected] +7 905 760 80 60

tel +7 495 589 22 51

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Jacob Hugeboom - IBCPIB™ 2009