Lessons From Pugachev – Trust Considerations

Pugachev Decision

The ground-breaking English High Court decision JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2017] has potentially introduced the concept of an "illusory trust", a rather different concept from the commonly-known concept of "sham trust" which concerns the common subjective intentions of the settlor and trustee to mislead third parties by giving a false impression that legal rights and obligations were created in accordance with the trust deeds.

This case concerns Mr Pugachev, founder of Mezhprom Bank, once Russia's leading private bank, which collapsed in 2010. Russian creditors asserted that Mr Pugachev had misappropriated funding during the global financial crisis in 2007 and 2008 and settled the funds in five irrevocable discretionary trusts governed by New Zealand law. Pursuant to the terms of the trusts, Mr Pugachev and his minor children were included as beneficiaries, Mr Pugachev was the Protector and his adult son was the successor