WS 9a Trusts and Insolvency: Customer Pre-Payments Flashcards

1
Q

What motivates companies to set up trusts?

A

s.214 Insolvency Act - a director may have to contribute from his personal wealth if he has not taken all possible steps to minimise risk to creditors.

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2
Q

Steps to take?

A

Will a valid trust be found to exist over C’s money? Go through the usual requirements.

Step 2: If a trust is found to exist in favour of company’s customers, and later becomes insolvent, consider preferences of creditors: is the declaration of trust unlawful?

Step 3: Conclusion - does the company hold the customers’ prepayments on trust for the customers?

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3
Q

Re Kayford? - certainty of intention

A

Separate bank account need not be labelled ‘customer’ or ‘trust’. Certainty of intention to create trust for customers can be inferred from:
i. Payment of customers’ money into a separate account
ii Evidence that the company’s accountants had advised above, in order to protect customers’ money
iii The company need not expressly state that the bank account was to be held on trust for customers, if evidence of such intention existed otherwise

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4
Q

Re London Wine Co (Shipping)

A

cannot create a trust over an undifferentiated mass of property (company must segregate customers’ goods)

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5
Q

Hunter v Moss

A

Mr Moss had never done anything to differentiate a block of 50 shares from the holding of 950 shares. IT WAS HELD that there was a valid trust of 50 shares for Mr Hunter. Court of Appeal distinguished Re London Wine Co (Shippers) because that decision related to tangible assets whereas Hunter v Moss concerned intangible assets. YOU CAN CREATE A VALID TRUST OF AN UNASCERTAINED PART OF A BULK OF INTANGIBLE ASSETS.

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6
Q

Re Goldcorp Exchange

A

specific gold ingots had not been assigned to customers as the stock of bullion was constantly traded, there was no intention to create a trust over the bullion for the customers. Trust failed due to lack of certainty of subject matter.

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7
Q

Case on certainty of objects

A

OT Computers v First National Tricity Finance: Trust for customer’s held to be valid. Trust for ‘urgent suppliers’ not valid. Could not draw up a complete list of ascertainable objects. Failed for lack of certainty of objects.

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8
Q

Further stages after 3 certainties?

A

Beneficiary principle: trust must have a beneficiary to enforce it.

Formalities: trusts over personalty can be declared orally or by conduct

Trust must be properly constituted

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9
Q

s.239 Insolvency Act 1986

A

A preference occurs if a company does anything which puts one of its unconnected creditors in a better position than it otherwise would have been on the company’s insolvency

(1) Effect of such a preference: The court can make an order to put the parties into same position they would have been in without the trust if:

a. Preference occurs within 6 months before onset of insolvency (or 2 years if creditor is connected to company); AND
b. Company is influenced by a desire to put creditor in better position

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10
Q

Re Kayford: Why was the trust lawful?

A

Declaration of trust by company in favour of its future customers was not an unlawful preference.

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11
Q

Re Farepak

A

Declaration of trust over money already paid by existing customers is an unlawful preference.

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