3129/22, 513 PM Family Wealth Disputes: Preparation is Key
Mavis Tan
Family Wealth Disputes: Preparation is Key
Money, power and pride weaken family ties. This has become more prevalent in recent years,
manifesting itself in multi-billion dollar family disputes heard publicly in open court and making
headlines in the international press. From the inheritance dispute between the Kwok siblings, whose
family control one of Asia’s largest real estate conglomerates, Sun Hung Kai Properties, to South
Korea’s Shin family power struggle over Lotte, we have seen it occur within Asia’s wealthiest families.
What is driving this phenomenon and is there a smarter way to navigate high net worth family
disputes?
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According to a Credit Suisse report, Asia Pacific is home to 54% of its database of 1,015 listed family-
owned companies with market capitalization of at least $250 million. The development of these businesses
can be traced back to the entrepreneurial expansion which started afier the Second World War and the rapid
growth of capital markets following the Asian financial crisis in 1997-98. Many of these businesses were
built by now ageing entrepreneurs and are reaching a stage where succession planning and transitioning
through to the second and in some cases, third generations are key to the continued success of these empires.
Therein lies the problem — transitioning in the face of rivalry between siblings, wives and different family
factions is no easy task
When Litigation f Inevitable
Family disputes are personal and often bitter affairs where commercial considerations do not always drive
their resolution, Of course, mediation via a trusted and respected individual (whether a family member or
third party) should, where possible, be explored first. But what if litigation is the only option? The best form
of damage control is to be as prepared as possible. Having been involved in numerous high net worth family
disputes in our capacity as forensic accountants and investigators, we believe there are a few things parties
can do to help them stay ahead in a dispute.
1. Your Core Advisor Team
From experience, you need to first assemble a core team of trusted advisors. This team should comprise legal
experts (often there are complex trust, probate and commercial issues in multiple jurisdictions to contend
with), forensic accountants and investigators, and crisis communications specialists. It is also a good idea to
have a trusted confidante (usually a senior figure in your family office) manage and coordinate the different
advisors. This person’s primary role is to ensure that all day to day decisions and actions are taken to protect,
your best interests. Many people underestimate the amount of time and resources required to see legal
proceedings through to conclusion. Having the right team and good advice from the get-go could save a huge
amount of time, stress, money and in many cases, embarrassment.
2. Rarly mobilisation of critical information and analysis
Of paramount importance is being equipped with the right information early in the dispute, particularly
details of the underlying assets subject to the dispute. This will drive your legal strategy for pursuing or
protecting those assets, depending on whether you are the claimant or defendant, This information also
enables informed and often critical decisions to be made along the way, for example in the formulation or
assessment of early settlement offers.
fon and mapping
In Asian cultures, privacy remains fiercely guarded where it comes to one’s personal wealth. Often, there is
no clarity on the extent ofa tycoon’s assets, their location and their true value. This is in part due to the
widespread use of individual and corporate nominees to hold assets. In a dispute, the party seeking
information about assets is typically faced with a complex web of nominees and layers of onshore and
offshore structures, usually involving trusts in multiple jurisdictions,
The first step is therefore to identify individual assets and piecing it together with the help of foren
accountants and specialist investigators who can access information on these assets through official
databases and on-the-ground discreet enquiries. It is not sufficient just to locate the assets, you will also need
to map out how they are held. It is only then that you are able to develop the right strategies to assert your
legal claims over the underlying assets.
What ist worth?
The next question that emerges is what are the assets worth? This is often not straight-forward when you are
assessing the value of business interests which require a certain amount of financial information on the
companies (often privately held and not immediately accessible). In the initial stages of formulating your
legal claims or defence, you are not looking for precise valuations, but a credible estimate of what each
principal asset might be worth. This helps you in testing or defending your opponent's initial claims about
the extent of the disputed assets.
Having information on specific assets also assists with the discovery process during litigation. This is
particularly the case where asset valuations have been artificially deflated through irregular accounting
treatment and/or related party transactions, or where there is a deliberate attempt to conceal assets.
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Having ballpark valuations in mind also helps when considering and negotiating any settlement offers. On
one engagement, we were asked to estimate the “value of action” and to model the estimated net return to the
plaintiff at the end of the proceedings compared to the monetary offer on the table at the time. This exercise
considered opportunity cost, time value of money and legal costs. This ultimately facilitated successful
settlement of what would have been a long drawn-out litigation at great cost.
Pressure points
As with any asset dispute, parties to a family dispute should be alive to potential leverage and pitfalls with
the manner in which assets are held and accounted for. Common areas of attack include, for example, trust
distributions not being made as reported, incomplete disposition of assets, improper or undocumented
capitalization of or loans to offshore asset holding companies, failure to pay gift tax, irregularities in director
current accounts, other undisclosed capital transfers and questionable related party transactions,
In one trust dispute, we identified significant discrepancies in alleged charitable donations made which were
no more than round-tripping payments to related parties of those in control of the trust. In another dispute
over the shares of a private company, we undertook a large-scale reconstruction of director and shareholder
current accounts over more than a decade in order to facilitate an equitable buy out of one shareholder's
stake in the business.
All forensic accounting work performed in investigating transactions, reconstructing records and valuing
assets must be properly supported and documented to a standard that is fit for use in court as ultimately, they
need to be legally defensible in related proceedings. In this respect, itis advisable to use forensic accountants
‘who are experienced in working with international legal teams and are well-versed with the doctrine of legal
privilege and attorney work product.
23. Communicate strategically
Owing to mind-boggling amounts of money at stake, often soap-opera deserving plots and the high profile
nature of the parties involved (some of whom may also be politically sensitive), high net worth family
disputes draw a lot of media attention. Certain parties have also exerted their influence over the media to
smear their opponent. It is therefore imperative that parties have the support of a crisis communications
specialist that is not just a PR firm, but able to advise and execute on a media strategy that ensures the right
level of engagement with appropriate media to ensure consistent messaging from a single source. It is also
imperative that press statements are accurate and factual (this will have an impact on the judge), and
confidentiality and legal privilege are protected.
In certain instances, it may be necessary to consider government and key stakeholder mapping in the overall
communications strategy. It may also be desirous to consider secking a confidentiality order from the courts
to prevent damage as a result of exposing private family matters to the public.
4. Preserve and monitor the assets
Once you have your ducks in a row with your claims over the disputed assets, you need to ensure that they
are preserved over the course of litigation, There are various legal means of ensuring asset preservation, For
example, we have assisted court appointed receivers in taking control of assets and investigating the holding
companies’ affairs whilst legal battles were fought out in court.
5. Transitioning control
In order to avoid further dispute once a division of assets has been agreed or ordered by the coutt, itis often
advisable, in very contentious matters to have an independent party assist in the transition of control over
companies, In this respect, we have assisted with obtaining a full accounting of the records and assets of
asset holding companies prior to handover to new management. This facilitated a professional and smooth
transition in an otherwise delicate situation.
Conetusion
It is extremely challenging to att
Stakes involved - reputational, emotional and monetary - are often stagge!
ck or protect wealth accumulated by your closest family members,
ng. Accordingly, it is
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imperative to be thoroughly prepared by taking the necessary steps to achieve transparency,
confidentiality and speed in the resolution of a family wealth dispute.
Author
Mavis Tan
Partner
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