Equity and the Law of Trusts

Document Type:Coursework

Subject Area:Law

Document 1

This principle shall be informative to the advice given to the SCH Company secretary. The issue of the case Most important fact to note is that a grantor, (who in this case is the SCH Company) establishes a trust fund whose main objective is to offer monetary safety to a person, or organization, such as a charitable trust or other non profit organizations. Ordinarily, this is always a move to cushion both him, in this case the company from the creditor in the case of insolvency and/or liquidation. Therefore, aware of the fact that SCH is in considerable financial difficulty and the need to ensure its debts are repaid. SHC has received a demand letter from HSBC demanding that its overdraft be paid in full. It can be considered that SCH is in breach of the contract here in this case.

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However, the most important point to also note is that Once SCH Company is declared insolvent there won’t be any point where creditors can’t sue the company in any way as the company doesn’t have enough assets to pay the creditors. Therefore any proceedings against it will be automatically stated by the court. In these circumstances, liquidated is pointed by creditors normally and the liquidated proceedings is a responsibility assigned to all categories of creditors as well as an workplace holder need to be answerable for his transactions with a company's property to all lenders according to what was lent. On the other hand secured creditors that hold a security might nevertheless keep their main concern standing and be able to assign receivers if they need to enforce their security.

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Particular problems occur when there is a debt, and the rights of both parties are regulated by the law of contract. Therefore the debtor is under obligation to repay the loan. If the debtor became bankrupt the money of as one creditor will be competing with all the other to whom the company owes money. So there is a probability that the creditor will be unable to recover more than a small portion of what the company owes to the creditors. Also if the company becomes a bankrupt as property held as a trustee. If in the circumstances it changes and the borrower uses the cash for a different reason, then a trust is on the money for the lender’s rights in it. The origin of this trust concept is significantly to protect the lender against the borrower’s insolvency as the loan money is considered as being held on trust for the lender and the money cannot be related in the insolvency circumstances as part of the insolvent borrower’s situation.

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Even in case the debtor became bankrupt after lending the money the creditor have the rights to reclaim under Quistclose trust to receive the loan and trace the loan money as well with all the other parties who has received the money in breach of the loan contract. Lord Wilberforce in his judgment held that, “It never hard to set up accurately upon what term the funds were advanced to Rolls Razor Ltd. There is no distrust in the understanding that the was made particularly in order to enable Rolls Razor Ltd to pay the bonus and for no other reason” Considering the case which gives the original concept of Quistclose trust as of the verdict of the House of Lords in Barclays Bank and Quistclose Investment Ltd7in this case the court found that there was not a problem to have the debt and a trust involved in the same transaction.

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As a result twinsectra sought after to recuperate the money from one of Yardley’s counsels. The House of Lords discovered that once money had been loaned it turn out to be completely assets of the debtor. However, the Lords held in the decision that whilst is recognized that a loan to a borrower is consented for a specific reason it shows that the borrower is not yet at liberty to use the cash for any other function and it leads to the rise of fiduciary duties on the side of the borrower which Equity law would thus enforce’. Therefore a trust had been formed on the Quistclose rule and twinsectra could recuperate the money. In comparison to leach’s potential responsibility for the abuse of the loan money. This could be done by them being considered when the company gets to sell some of its assets in the settlement of debts.

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In conclusion, the repayment of the Company creditors would and must be determined through the order of preference. This is so because of the fact that, if the debtor become bankrupt, the money of one creditor will be competing with all the other to whom the company owes money. As a result, the money borrowed from Frost Finance Limited is well protected from HSBC’s claim because it fails the test as set out in the case of Barclays Bank and Quistclose Investment Ltd. The principle is to the effect that, when a lender of money inserts a special clause in the loan contract requiring “securities interests” which provide a certain purpose specifying that the borrower may use the loan only for stipulated purpose, that borrowed money must only be used for that very purpose.

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