QUISTCLOSE TRUSTS FROM A CORPORATE INSOLVENCY PERSPECTIVE: A POSITIVE AND NORMATIVE ANALYSIS | The Cambridge Law Journal

I. Introduction

Leading cases show Quistclose trusts being used by companies nearing insolvency.Footnote ¹ Their use in this context raises serious normative problems: allowing a lender or, in a Re Kayford trust, a purchaser, to make itself a beneficiary may prefer that lender or purchaser to the borrower’s other creditors. Use of funds subject to a Quistclose trust to pay a debt of the trustee may prefer the payee to the trustee’s other creditors. Because Quistclose trusts are not registered, outsiders to such trusts, such as borrower companies’ non-trust creditors, may mistakenly believe trust funds to be trust-free. These problems should be considered in deciding whether and when to recognise and enforce such trusts.

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