¶ 2101
Overview
Scope of the chapter. This chapter examines the rule under which a creditor of a settlor may reach property transferred to a Cook Islands international trust on the ground that the transfer defrauded the creditor. The rule is section 13B of the International Trusts Act 1984, inserted in 1989 and amended in 1989, 1991, 1995–96 and 1999. It is the center of the Act's protection for settlors and the only route by which a creditor may reach trust property on a theory of fraud. The chapter examines the elements of a claim under section 13B, the criminal standard of proof the creditor must meet, the periods within which a transfer becomes immune and within which the creditor must sue, the solvency test that deems a transfer innocent, and the limited remedy the section gives a successful creditor. It then examines the parallel provision for foundations, the absence of any such provision for LLCs, the comparable rules in Nevis and Belize, and the treatment of the same transfer by an American court.
Relation to other chapters. The Act as a whole, its history and its amending Acts are examined in chapter 5 (see supra ch. 5), and the creation of an international trust in chapter 6 (see supra ch. 6). Section 13A, which preserves an international trust in the settlor's bankruptcy subject to section 13B, is examined further in chapter 22 with the other bars to suit, including section 13K (see infra ch. 22). Section 13D, which bars the recognition of foreign judgments, is examined in chapter 23 (see infra ch. 23). The procedure for a claim in the High Court, including freezing orders and disclosure, is examined in chapter 24 (see infra ch. 24), and the contempt and repatriation orders an American court may make against the settlor in chapter 25 (see infra ch. 25). The companion volume Lighthouse on Asset Protection examines section 13B alongside the voidable transfer law of the United States and is the fuller source for the American analysis summarized in paragraph 2180.
The text used. No official consolidation of the International Trusts Act 1984 has been published since the amendments of 1989 to 2013. The text of section 13B quoted in this chapter has been assembled from the amending Acts themselves, read in the copies published by the Financial Supervisory Commission, and checked against the consolidated text of section 13B(1) to (16) and section 13K(1) quoted in full by the High Court in A v. B, [2002] CKHC 6, [14] (Cook Is. High Ct. Apr. 4, 2002). No amendment to section 13B has been made since the International Trusts Amendment Act 1999. The amending Acts of 2004 and 2013 did not touch it (see supra ¶ 560).
Plan of the chapter. The chapter proceeds as follows:
- the background: the Statute of Elizabeth, the domestic law of the Cook Islands and the design of section 13B (¶ 2110);
- the elements of a claim under section 13B(1) (¶ 2120);
- the standard and burden of proof, the rule against imputed intent and the evidence a creditor may obtain (¶ 2130);
- the time rules: accrual, the two-year and one-year periods of section 13B(3), section 13B(4) and the two-year limit of section 13K (¶ 2140);
- the solvency test of section 13B(2) (¶ 2150);
- what the creditor recovers, and the limits on recovery (¶ 2160);
- foundations and LLCs (¶ 2170);
- comparisons with Nevis, Belize and the United States (¶ 2180); and
- planning, documentation and a checklist (¶ 2190).
Terms. In this chapter, transfer means the settlement or establishment of an international trust and any disposition of property to one, as section 13B uses those words. Accrual means the date on which the creditor's cause of action accrued, as defined in section 13B(8). Creditor has the meaning given by section 13B(12): a creditor of the settlor, including any person who alleges a cause of action against the settlor. The Act refers to "the Court", which is the High Court of the Cook Islands, and section 13K requires a claim under section 13B to be brought there. T0, T1 and T2 describe the timing of a transfer: before any claim exists, after the facts giving rise to a claim but before suit, and after suit or judgment.