Are there failed fiduciary funds? Are fiduciary investments safe?

In 2015, Chinese businesswoman Zhang Lan (Ms. Zhang) received widespread media attention after private equity group CVC Capital Partners obtained a court order freezing her assets. U.S. District Courts have ruled that in the La Dolce Vita Fine Dining Company Limited v. Zhang Lan case, the proceeds from the sale of a New York apartment owned by Ms. Zhang and her company belong to La Dolce Vita. Now, following recent rulings in Hong Kong and Singapore courts, various properties that Ms. Zhang claimed were assets of the family trust fund are recognized as her personal property and creditors are allowed to take action to attach them. The court's decision raises new concerns''as to the appropriateness of trusts and the security of trust assets in the event of creditor claims. Consider the case of La Dolce Vita Fine Dining v Zhang Lan and others [2022] SGHC 278, which was heard in the Singapore Court, and draw attention to the importance of due formalities in setting up a trust fund and the need for it to be properly administered and for proper legal advice to preserve the effectiveness of such structures, as noted in the court's judgment.

It is important to note that Ms. Zhang was the owner of two companies registered in the British Virgin Islands (BVI Companies), which were the second and third defendants in the case. She also previously owned Success Elegant Trading Limited (SETL), which was the fourth''defendant. SETL had bank accounts with Credit Suisse AG and Deutsche Bank AG (Bank Accounts). In 2013, La Dolce Vita purchased shares in companies actually owned by Ms. Zhang, which ultimately owned the South Beauty restaurant chain in mainland China. The proceeds from the sale of the shares, totaling $254 million, were transferred to her account at Bank Safra Sarasin Hong Kong.

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A dispute arose between La Dolce Vita and Ms. Zhang over the acquisition. Between March 2014 and November 2014, payments totaling US$142 million were made from this account to SETL's account at Credit Suisse and transfers totaling US$85 million were made from this account to SETL's account at Deutsche Bank. In June 2014, Ms. Zhang established a Cook Islands family trust known as Success Elegant Trust, in''in favor of her son, his children and descendants (the Trust). At the Hong Kong trial, Ms. Zhang stated in her deposition that the Trust was irrevocable and that she was "completely excluded from any direct or indirect interest derived from the property, assets and income created under the trust" and she had "no rights in relation to the trust, including the right to revoke or appoint a settlor or increase/decrease the beneficiaries." In addition, the day after the Trust was established, in June 2014, Ms. Zhang transferred SETL's sole shareholding in AsiaTrust Limited as trustee of the Trust. In March 2015, these Bank Accounts held by SETL were frozen when the banks were granted freezing orders against Ms. Zhang. In May 2020, as creditors of Ms. Zhang,''s and two BVI companies were issued two awards in Hong Kong which recognized and sanctioned arbitral awards rendered in their favor in CIETAC arbitration proceedings. Registration orders to register these two awards were issued in Singapore in November 2020. Following these orders, La Dolce Vita sought to enforce these awards in Singapore and to appoint a receiver for the funds and securities held in the Bank Accounts (Money). The enforcement proceedings were commenced on the basis that, despite the Bank Accounts' legal ownership of SETL, Ms. Zhang remained the beneficiary, making these accounts susceptible to objections from Ms. Zhang's creditors.