Date of publication: 25-01-2019
Category: Legal updates
The Law on Trust
On 2 January 2019, the Law on Trust (“the Law”), which composes of 8 chapters and 57 Articles, was promulgated.
1. Purpose of Trust
According to a notification of the Council of Ministers of the Royal Government of Cambodia, the Law aims to administer funds, finance or subordinated debt provided by development partners in order to support the micro-finance sector in Cambodia. The Law covers general trust in the economic and social sectors, thereby helping to diversify and develop the financial sector in line with the regional and global financial development trends.
2. Types of Trust
As provided by the Law, a trust is divided into 4 categories, which are commercial, public, social and individual trust.
A Commercial Trust is created for the benefits of a trust donator or any specific individual determined by such donator including a pension or an education foundation, etc. A Public Trust is created for the benefits of the Cambodian people as a whole such as for the development of a bank or micro-finance. A Social Trust is created when a trustor donates his/her property to a trustee for the benefits of the general public in the society such as for cultural, educational, humanitarian, religious or scientific purposes. An Individual Trust is created for the benefits of a trustor or an individual determined by the trustor.
3. Parties to Trust
Key parties to trust are a trustor, a trustee, and a beneficiary. Other parties, who can be involved, can be a trust donator and a trustor substitute.
4. Creation, Effect, and Registration of Trust
The Law sets out two conditions for the creation of a trust, namely a trust created by a trustor and a trust created by legal provisions. In the former case, a trustor must transfer his or her own property or funds to a trustee through a trust letter while in the latter case, the trust property must be automatically transferred to a trustee to administer or dispose of such property in accordance with legal provisions. In both cases, the identity of the beneficiary and/or a specific purpose of the trust must be specified and must not contravene legal provisions and public order.
To be valid, the trust requires an agreement in writing by the trustee. In addition, the trust has to be registered at the Ministry of Economy and Finance (“MEF”) no later than 03 months after the date of the creation of the trust. Specific conditions and procedures for the trust registration will be determined by a Sub-Decree.
5. Inspection of Trust
Every operation of a trust must be under the inspection of relevant regulators in order to ensure that the use of the trust property conforms with its original purpose. The Law gives the MEF the discretion to approve an appointment of an independent auditor to audit the management of the trust whenever necessary and unless otherwise specified by other relevant provisions. Also, following a request from the MEF and without any different stipulation by other relevant provisions, a trustee must agree to the inspection of the trust record and must provide financial reports or other information.
6. Termination of Trust
A trust will be terminated upon an expiration date as determined in the trust letter, by having fulfilled the purposes of the trust, by discretion or a unanimous decision from the trustor(s), by a decision of a competent court, or by any other conditions as stipulated in the trust letter.
7. Dispute Resolution
Under the Law, any dispute relating to the operation of the trust must be resolved by the Council of Trust Dispute Resolution of the MEF, except otherwise determined by relevant regulations. The decision of the Council is subject to an administrative complaint or a lawsuit filed to a competent court within 30 days from the date of the issuance of the decision.
The Law regulates that a trustee, a legal entity or any individual who does not comply with the Law as well as those who commit any illegal act as stipulated by the Criminal Code, Law on Anti-Money Laundering and Combating the Financing of Terrorism and other relevant criminal laws will be liable for civil and criminal penalties.
9. Transitional and Final Provisions
The final part of the Law concerns trusts that are already in existence. For, Individuals who have been managing trusts are granted a three-month period to register their trusts at the MEF. The Law further provides that financial trustees who have registered their trusts in accordance with the Sub-Decree No. 476 dated 26 August 2013 on Financial Trust will be incorporated under this Law after its entry into force.