The Foundations (Jersey) Law 2009 (the “Foundations Law”) was registered by the Royal Court of Jersey on 19 June 2009 and came into force on 17 July 2009.
In the past a substantial amount has been written about the use of Jersey-based Shari’a-compliant trusts as a financial planning tool for Muslims, and the similarities between the Jersey Trust and the Waqf. The introduction of the Foundations Law in Jersey has added another tool that can be utilised when designing Shari’a-compliant structures. As with the trust many similarities can be drawn between the Jersey foundation and the Waqf and each has its own benefits.
What is a Jersey foundation?
A Jersey foundation is designed to blend the highly attractive features of both Jersey corporations and Jersey trusts. It provides Jersey with an alternative financial planning vehicle to companies and trusts for wealth management and charitable purposes.
The Jersey foundation is an entirely new type of Jersey legal entity and is not an exact equivalent or copy of any foundation established in any other jurisdiction, as it has been modelled on the best features present in the laws of other jurisdictions, whilst also including unique Jersey features.
The remainder of this article will focus on the features of the Jersey foundations and some similarities and differences between Jersey foundations and Waqfs.
The nature of a foundation is that it has separate legal personality, it is able to contract with third parties, sue and be sued in its own name and holds its own assets, which can be traded. Similarly, Shari’a law provides that a Waqf is an independent legal entity (‘thimmah’) that may engage in trading with third parties, but, a Waqf may be restricted from trading in the original settled assets.
As the incorporation of a Jersey foundation is regulated under the Financial Services (Jersey) Law 1998, only a person who is appropriately licensed under that law will be able to apply for the incorporation of a foundation (a “Qualified Person”). The Founder will be the person who instructs the Qualified Person to incorporate the Jersey foundation. Volaw is registered to provide this service.
In order to create a Jersey Foundation a Founder, Qualified Person, Charter (which will contain the Objects of the foundation) and Regulations are required. There does not need to be an initial endowment (settlement) or beneficiaries (although a purpose must be identified) for the establishment of the foundation to be valid.
The creation of a valid Waqf on the other hand is more similar to that of a Trust in that it requires a settlor (‘Waquef’), a declaration (‘al Hugah’), the property given as Waqf (‘al-Mawqufah’) and a beneficiary (‘al-Mawquf Alayh’). There has been debate amongst scholars as to the requirement for pious intent ‘Niyyat al-qurba’ on the part of the settlor but most agree that the purpose of a Waqf itself must simply not be sinful.
The objects of a foundation may be to benefit a person or a class of persons or to carry out a specified charitable or non-charitable purpose (or may indeed be a mixture of these things). The foundation will hold assets in its own name. It will use these assets in accordance with its constitutional documents (the charter and the regulations), either to benefit specified persons or for a specified purpose. The Waqf is commonly established for the provision of religious, charitable or social services or to support the family of the settlor. There are 2 basic types of Waqf: the Waqf Khairee where the income of the Waqf property is dedicated in perpetuity for charitable or religious purposes and the Waqf Ahlee where the income of the Waqf is dedicated in perpetuity to members of the Settlor’s family. It is possible to have a Waqf that combines both religious and charitable purposes with the maintenance of the Settlor’s family.It is therefore possible to structure a Jersey foundation in such a way as to have the s
ame objects as a Waqf would have.
A Jersey foundation will hold assets in its own name. It will use these assets in accordance with its constitutional documents (the Charter and the Regulations), either to benefit specified persons or for a specified purpose. The foundation shall invest these assets and either distribute them to beneficiaries or use them for the stated purposes.
In comparison, views differ as to the ownership of property which as been declared as Waqf. Different Shari’a schools have different views upon this. The Maliki school for example takes the view that the Settlor remains the owner of the Waqf property but is prevented from using it; however, Hana and Shafi’i schools believe it is effectively ownerless. Imami scholars generally agree that the property ceases to be the Settlor’s but seem to disagree as to whether it becomes ownerless or belongs to the beneficiaries, subject to whether the property is held within a public or private Waqf.
The main difference between the Jersey foundation and the Waqf with regards to assets is therefore in the application of capital assets. It is possible to structure a foundation in such a way as to apply income only to a purpose however some direction must be given as to the application of the capital upon the winding up of the foundation.
The Constitutional Documents and Organisation
The constitutional documents of a Jersey foundation consist of the Charter (a public document, which will be filed with the Jersey Registrar of Companies and available for public inspection at the Registry) and the Regulations (which are private and thus may be viewed by only those defined as “persons appointed under the regulations of the foundation”). The Regulations are required to establish a council to administer the foundation’s assets and to carry out its Objects. The Regulations must also provide for the appointment of a Guardian to ensure the accountability of the Council.
The Council exercises the power of the foundation. Council members only have duties towards the foundation itself; they have no fiduciary duty to individuals who may benefit from the foundation.
A Waqf is established with a Declaration using words which clearly prove the Settlor’s intention. It is not settled between Shari’a schools as to whether the Waqf can be settled by actions. There is usually only one Nazir or Mutawalli however there is nothing in principal to prevent the Waquef or the Mutawalli appointing a council.
For both a Waqf and a Jersey foundation it is important that the objects of the entity are established clearly at the outset and this is the main purpose of any Charter and Regulations or Declaration.
The principal role of the Guardian is to ensure that the Council carries out its functions in order to achieve the objects of the foundation. The requirement for a Guardian ensures the proper administration of foundations and the protection of the beneficiaries of the foundation. The Guardian may retain various executive powers, such as a veto over certain decisions of the Council.
This is an area where, although not directly in line with the usual structure of a Waqf the Jersey foundation provides an interesting edge in terms of Islamic finance. Because the Guardian can retain powers it may make sense to appoint either the Founder or (possibly a more interesting concept) a Shari’a scholar to oversee the foundation and Council. Something that we often see in Jersey when setting up Shari’a-compliant structures is an unease on the part of the Settlor in handing their assets to a Trustee. With a Jersey foundation, not only can the Founder (Settlor) legitimately be a Council member but they can also appoint family members to the Council and either become Guardian themselves or appoint an appropriate person. Whilst the trust concept is flexible, the foundation clearly offers an attractive proposition to clients who wish to retain a high level of continuing control over the assets settled into a structure.
Use of Foundations
Foundations provide Jersey with an alternative financial planning vehicle to companies and trusts for wealth management and charitable giving. Many civil law jurisdictions do not recognise the concept of a trust, but are happy with the foundation. It is expected that Jersey foundations will be used by those who require transparency, wish to control assets (rather than transferring the assets outright to the trustee of a trust), or who prefer a structure with which they are familiar. In terms of Islamic finance, each of the trust and the foundation provide a facility to clients to structure their affairs in compliance with Shari’a law under regimes that can be said to have clear and identifiable similarities and differences to the Waqf.
Global Arab Network
Kate Anderson, an Associate in Voisin’s Commercial team, discusses the similarities between the Jersey foundation and the Waqf and the benefits these structures offer.