A trust is defined as a legal relationship whereby a person, the trustee, holds property as its legal owner, for benefit of one or more beneficiaries.
The Maltese legal system is quite flexible in that it caters for a number of different trusts, such as fixed trusts, discretionary trusts and trusts for a charitable purpose. The concept of the Maltese trust has also expanded into the commercial world, especially due to their usefulness as protection from the insolvency of a business partner.
Commercial trusts can be set up to hold:
- securities offerings, whether to the public or for private placement, portfolio management and custody of investment instruments;
- the securitisation of assets –
- the grant of real or personal security interests including hypothecs, mortgages, privileges, pledges and guarantees;
- collective investment schemes;
- employee benefit or retirement schemes or arrangements;
- syndicated loan agreements and other multi-creditor banking facilities;
- insurance policies and the payment of proceeds thereunder;
- timeshare and multi-property structures;
- settling an asset on trust as security for a loan obtained for commercial purposes; and
- such other commercial transactions as may be prescribed in a Notice issued by the Minister
Taking but a few examples, one may set up a security trust, which can be used to hold assets or guarantees over assets, as security over a debtor for one or a number of creditors. Some benefits of this type of trust are that one entity, being the Security Trustee, may hold multiple forms of security for the benefit of the same creditors. Another added benefit is that the Security Trustee will act on behalf of all creditors and thus will be able to simplify transactions involving multiple creditors.
A similar type of Trust may also be used within the context of securities listing, whereby a trustee may be appointed by the issuer to act as a trustee for the benefit of the numerous security holders as a class e.g. bondholders. The security holders will have the added benefit of a third party who is independent from the issuer acting on their behalf and for their benefit.
Another type of commercial trust is the Employee Benefit Trust, which is set up to offer an extra benefit to employees, and which may take various forms such as share option schemes and reward schemes.
The setup of commercial trusts allows for a wider flexibility since the terms of the trust are determined from the ad hoc trust deed which reflects the contractual agreement of the parties. Therefore, within the parameters of the law, the parties may decide to be regulated by different rules as per the trust deed, thus confirming the flexible nature of commercial trusts.