Errors in Foundation Statutes-How Founders in Liechtenstein are Expropriated

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In the past, many a resourceful investor had hidden his money from the tax authorities by means of a Liechtenstein foundation. Some are now in for a rude awakening, not because of data leaks, but because they are being banned from the foundation before the other foundation board members.


Data leaks and increased exposure of tax evasion with the help of Liechtenstein foundations have led to thousands of foundations and billions in foundation assets being withdrawn from Liechtenstein. The lucrative business as a trustee and foundation board member, which has helped many a former Liechtenstein mountain farming family to prosperity, is thus in danger of shrinking considerably. The Liechtenstein legislator has reacted and since 2009 has considerably tightened the requirements for foundation trustees. Many legacy trustees now have limited licensure. However, quite a few trustees secure their income by throwing out disliked foundation boards and foundation presidents – including the founder himself.

Dismissal of members of the Board of Trustees

The dismissal of foundation board members who stand in the way of the remaining trustees and foundation board members then looks something like the following excerpt from the minutes of a foundation board meeting of a charitable foundation held in Vaduz in September 2012, with which two co-foundation board members K (a trustee) and G dismiss the foundation board president X (who is also an economic benefactor):


“Motion of the Board of Trustees K: Dismissal of X as a member of the Board of Trustees.

Decision based on Article 5(5) 4 of the Articles of Association (the Board of Trustees passes its resolutions and conducts its elections by a majority of all members present).

majority, two votes yes, one vote no.

X is therefore removed from office as a member of the Board of Trustees with immediate effect.

Thus, his position as Chairman is void for the remainder of the Board of Trustees meeting.

From now on, the meeting will be chaired by the Board of Trustees K.

K is instructed and authorised to apply to the Land and Public Registry for the implementation of this resolution (deletion of X as a trustee).”


Office of Justice does not give a legal hearing

The Office of Justice in Liechtenstein, which was established at the end of 2012 as the supervisory authority for foundations, implements such decisions and deletes the dismissed foundation board member X from the public register without even notifying him in advance and without offering him the chance of a legal hearing. Rather, it proceeds purely on the basis of the file, i.e. after the minutes of the meeting have been submitted, only to implement them. After the cancellation has been carried out, the former president of the board of trustees X is only a third party, may complain, but is simply referred to the ordinary courts without any substantive examination by the Office of Justice.


Founders were deceived by misleading foundation statutes

The foundation statutes had been drawn up by the later trustee and foundation board member K. In Germany, such a thing would be a case for the public prosecutor because of a so-called conflict of interests – in Liechtenstein, on the other hand, this may be considered normal. A dismissal of foundation board members was not addressed in the statutes in any way – therefore the founder assumed that this could only be done by a court in justified serious cases, such as when the foundation board had “dipped into the till”. The founder never dreamed that this could be done simply by a majority vote.

The statutes, on the other hand, regulated other decisions, even the election of foundation councils, and the by-laws also provided for a right of veto against these decisions by the trustee of the foundation – this is the wife of the founder. In the case of the hidden – because not expressly named – possibility of dismissing the board of trustees by simple majority vote, the drafter of the statutes, Trustee K, the later co-founder, had simply “forgotten” this – and it was thus not missed. Since the introduction of the new foundation law in Liechtenstein on 1 April 2009 at the latest, it is practically mandatory that foundation statutes also contain express provisions on the dismissal of foundation board members. However, there was no legal obligation to adapt the articles of association, since the old law continues to apply to old foundations. An adjustment to the new foundation law suggested by the founder was not made. Then, of course, the founder would have insisted on a veto right of the trustee also against it, and the takeover of the foundation by ejecting the president would not have worked so foreseeably from the beginning.


Protection against hostile takeover

A look at the statutes of Liechtenstein charitable foundations shows how such hostile takeovers can be prevented.

Thus, the removal and appointment of foundation board members can be exclusively and expressly left to the founder by the foundation statute. It is also helpful to set up a curator or protector with a comprehensive right of veto against even dismissal decisions. Finally, the dismissal can also be limited to cases of an existing court order, which offers the advantage that legal hearing is to be granted comprehensively here.

That such provisions were only inadvertently forgotten by Trustee K here does not necessarily seem credible. The founder at any rate suspects that this was intended to keep open from the outset the possibility of the foundation being taken over by an unexpected recall of the founder as president of the foundation council. This is due to a possibility of dismissal disguised only as a majority rule for general resolutions, in order to secure one’s own income as a foundation board member.

Towards the – economic – founder and the foundation supervisory authority, the foundation board members claim that he is not a founder at all. However, before 2009, it was not even required by law that intermediary trustees and agents had to name the beneficial founder to the foundation council upon request – they often did not even know him. It was only with the new foundation law, which did not apply to old foundations, that the role of the actual economic founder was bindingly strengthened from 2009 onwards.

Regardless of the legal assessment, the founder feels cheated by trustees and foundation boards and wonders how easily this can be implemented with the help of foundation supervision. The regular response to doubts is “This is common practice here in Liechtenstein.”


asset protection protector

In addition to avoiding loopholes in the articles of association and by-laws, it is advisable to have a protector, without whom it would then not be possible to dispose of assets with banks and insurance companies. After all, it is a tradition in Switzerland and Liechtenstein that security must be provided for legal costs incurred by opposing – albeit criminal – trustees before a claim would be processed. Also succession regulations for the organs of the foundation are to be examined exactly, particularly since central organization rights of the economic founder perish with its death, however the adhesion for income and gift tax from the past often remains to the heirs particularly with family foundations, § 1922 BGB.


Liability risk for foundation trustees

Non-charitable and family foundations are also affected. Founders of non-charitable foundations would also not have dreamed that the withdrawal of access to the assets of the foundation resulting from their dismissal as members of the board of trustees could at the same time result in liability for gift tax, § 20 VI 2 ErbStG. Just as trustees in Liechtenstein do not suspect that the German tax office at their place of residence, for example in Austria, can execute within days due to the public-law strict liability according to the EStG in the case of the smallest errors in the tax-relevant circumstances.


It is also getting tighter for foundation boards and trustees, as foundation assets are increasingly being withdrawn from Liechtenstein in view of the tougher action taken by tax investigators against tax evaders. The prospect of having to herd cows on the pasture again is sure to give many a trustee ideas, with expensive after-effects for the smallest of mistakes.


by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm


by courtesy of

private banking magazine, published 07.01.2015

and (published 11.09.2015)


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Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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