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06 August 2020
The COVID-19 pandemic has had two major implications for family governance structures:
Accordingly, families need short-term fixes to their structures, but should also ensure that their structures are 'digital ready' to ensure that they work in the long term.
Without these fixes, structures could face paralysis with disastrous effects for family businesses and private assets.
This article provides a practical checklist for family governance in the post-COVID-19 world. The considerations below apply equally to new and existing structures.
Family councils and their legal advisers should consider taking the following actions.
Formulate digital policies
Families should formulate policies on digital communication. Is the family prepared to embrace (or tolerate) digital communication or will it frustrate the family ethos?
Identify immediate defects
Families and their lawyers should identify defects which require immediate changes. For example, what if board or protector meetings are premised on physical meetings, which cannot currently take place? Some structures may already be in breach or be unable to function.
Undertake detailed redrafting
Core rules on voting and meetings should be reconsidered. The sorts of question now arising include the following:
Mitigate tax issues
Families should consider how to mitigate the risk of bringing structures onshore when working digitally (especially if trustees are grounded onshore in crisis situations).
Re-evaluate core provisions
The current crisis highlights the ongoing importance of reviewing several core provisions:
Economic substance rules require a physical presence in the jurisdiction where the structure is incorporated. Structures should ensure compliance when operating digitally.
Trustees and other fiduciaries owe duties of confidentiality under statute and common law. Measures are needed to ensure compliance when, for example, conducting videoconferences and arranging electronic signatures.
In many cases, patriarchs and matriarchs will strongly advocate the status quo on matters such as physical meetings, and this should remain the default option for most families.
However, it can no longer be assumed that structures can always run on the traditional basis. Structures should therefore be reviewed to ensure that they are digital ready.
For further information on this topic please contact Nick Jacob, Kelly Noel-Smith, Daniel Ugur or James Brockhurst at Forsters LLP by telephone (+44 20 7863 8333) or email (email@example.com, firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Forsters LLP website can be accessed at www.forsters.co.uk.
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