Rohan Balani, ‘Abandoning the Quistclose Trust in Insolvency’

ABSTRACT
The majority of academic commentary on the Quistclose trust has focused on its juridical nature in an attempt to understand it through orthodox trust principles. This article focuses instead on the less discussed normative and practical aspects of the Quistclose trust. Through a consideration of the leading cases giving rise to Quistclose relief, it is shown that the trust cannot be justified as a device to give effect to party intention. Instead, in light of commercial realities, it is better understood as a proprietary remedy for lenders. Since the effect of Quistclose relief is to allow the lender to bypass pari passu distribution in insolvency, there must be some normative justification for granting proprietary relief to lenders in these scenarios rather than restricting them to their remedy in debt. This article argues that there is none, and the result of maintaining the Quistclose trust is to unjustly distinguish between equally deserving creditors of the insolvent company.

Balani, Rohan, Abandoning the Quistclose Trust in Insolvency (September 2, 2021). Adelaide Law Review, volume 42, no 1, 2021.

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