THE RISK MITIGATION RESERVE TRUST ('RMRT')
The Risk Mitigation Reserve Trust (Structure)
A trust registered outside of Switzerland and managed within Switzerland has certain tax advantages (section 5.1.2, Circular Letter; Article 24 lit. a, FDTA; Article 7 (4) lit. c, FTHA). As the name implies, this instrument provides the trustee(s) with discretion over distributions from the trust. Discretion must be exercised in accordance with the terms of the trust deed; however, it is entirely up to the trustees to decide as to the timing, size and nature of the distributions, and even, in some cases, which of the potential beneficiaries is to benefit by Concession. The assets are said to be “held in trust” for the beneficiaries to one day decide what to do with those assets. In this instance the RMRT is held in perpetuity, so if for whatever reason The FairFund Federation (‘Federation’) was to cease operations, the RMRT would be transferred to another entity having similar ethos and objectives of the Federation.
Risk Mitigation by Concession
All projects to be successful require appropriate risk allocation. Normally the risk is held by the party best able to manage it. Traditionally, he who bears the risk reaps the reward. Under the Federation structure, apart from the sharing of minimal risk (10% of project budget) that the Member takes, the risks are those of the Federation, and the rewards go directly to the members of the community, who benefit from the development of the project.
The Federation structure eliminates sovereign risk, political risk, exchange / currency transfer risks, project risks (pre-tender, design, development, construction and implementation) and credit risks for credit institutions and project investors.
The Federation of FairFund Foundations will:
1. Cover risks resulting from acts by the host government that:
2. Protect against total expropriation of equity investments. It will pay from the RMRT the net book value of the Special Purpose Vehicle ('SPV') registered investment. For loans and loan guaranties, the RMRT administered by The Federation will guarantee the Lender the net unrecoverable outstanding principal. In exceptional cases, it may pay any accrued and unpaid interest.
Compensation may be payable upon assignment of the investor's right, title and interest in the expropriated investment (e.g. equity shares or principal, and interest in a loan agreement).
3. In the case of Force-Majeure, war and civil disturbance, through the related SPV , protect against loss from or damage to, or the destruction or disappearance of, tangible assets caused by natural disaster or by politically motivated acts of war or civil disturbance in the host country, including revolution, insurrection, coups d'etat, sabotage and terrorism.
For equity investments, the Federation will pay from its RMRT the investor's share of the least of either the book value of the assets, or their replacement cost, or of the cost of repair of damaged assets.
For loans and loan guarantees, the Federation will pay from its RMRT the registered recourse guaranteed portion of the principal and interest payments in default, as a direct result of damage to the assets of the project by natural disaster. Only principal will be paid, if the loss is caused by war or civil disturbance.
War and civil disturbance protection will also extend to events that, for a period of one year, result in an interruption of project operations, which are essential to overall financial viability. This protection will be effective when the investment is considered a total loss. At that point, the Federation will pay from its RMRT the net book value of the total registered equity investment. For loans and loan guarantees, the Federation will pay from its RMRT the registered portion of the principal and interest payments in default, as a result of business interruption.
4. Protect and pay from its RMRT any losses sustained by investors and lenders by reason of a denial of judicial remedy, i.e. (i) there is no recourse to a judicial or arbitral forum to determine the claim of repudiation or breach, (ii) a decision by such a forum is not rendered within a reasonable period of time; or (iii) a final decision of such forum cannot be enforced.
The Federation will retain at all times matching value in cash and / or assets readily convertible to cash to meet its risk mitigation obligations.
The RMRT will be an Irrevocable discretionary trust established under UK law with the settlor to the RMRT being a non-resident of Switzerland. The Trustees will be Swiss Asset Managers.