Quistdose trusts: theory and context

Abstract

Commonly employed in corporate rescue situations, the Quistclose trust (from Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567) is a device that enables an investor to advance funds to a troubled company to be used for a specific purpose. If the recipient company becomes insolvent before the money is spent then the funds will be held on trust for the original lender, thus ensuring that the property is not available for distribution amongst the company's unsecured creditors. This thesis examines both the theory and context of Quistclose trusts. It is argued that, whilst the devices are most commonly found in insolvency situations, the Quistclose analysis should be available wherever property is transferred for a specific purpose. Thus the paper identifies and discusses such issues as the 'requirement' of segregation of the trust property, the specificity of purpose necessary, and the type of property that may be subject to a Quistclose trust. The context of the Quistclose trust is also examined by reference to other security devices: equitable charges and retention of title agreements. Similarities and differences are identified and analysed in the context of insolvency regimes: should Quistclose trusts be subject to legislative controls, given their apparent ability to circumvent legislative provisions? Various commentators have attempted to categorise Quistclose trusts as express trusts, resulting trusts, sui generis trusts, or even full beneficial transfers coupled with equitable rights to restrain misuse. Following consideration of the strengths and weaknesses of each proposal it is argued that Quistclose trusts can indeed be reconciled with accepted principle. However, it is also suggested that there is no single correct classification: depending on the most accurate construction of the parties' actions and intentions the proper analysis may involve an express trust, a resulting trust, or indeed no trust at all.