Trusts and insolvency Flashcards
Customer pre-payments
If a supplier goes into liquidation before delivering goods or services the customer is a lowly unsecured creditor with little chance of recovering his money. You could create a trust of the money when you send it to the company. As a trustee of the money, the company would be obliged to keep it separate from its other funds and could not use it in its business
Does a valid trust exist?
Requirements for a valid trust over customer’s money or goods:
- 3 certainties
- Beneficiary principle
- Formalities
- Constitution
Certainty of subject matter
If the trust property is not separated from other property of the same kind then there will be uncertainty of subject matter and trust will be void. The prevailing view is that the company must intend to keep the customer’s money or property separate from the company’s other money or assets the customer’s trust property cannot be used. Should pay trust property into a separate bank account
Certainty of intention
Re Kayford -
1) The payment of customer’s money into a separate bank account was a ‘useful indication of an intention to create a trust’
2) The decisive factor was that the company’s accountants had advised that a trust bank account was the best way to protect customer’s money
3) The company did not have to state expressly that the bank account was held on trust for customers - means customers had a proprietary claim arising from their equitable interests
Certainty of objects
OT Computers - 2nd account was held on trust for ‘urgent suppliers’ this trust was held to be void because the objects were uncertain. It was not possible to draw up a complete list of every beneficiary of this fixed trust
The insolvency act - Purpose
If a company created a trust for customer’s money then there’s further consideration within legislation. A declaration of trust over the money of existing customers is an unlawful preference. Customers who paid money after declaration there is no preference
