Q&As

Is it possible to create a trust vehicle to hold monies paid in by Party A (the service provider) for the benefit of Party B to ring-fence monies to the equivalent value of services due, in the event that Party A suffers an insolvency event? If so, what type of trust would that be?

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Published on LexisPSL on 20/12/2016

The following Commercial Q&A provides comprehensive and up to date legal information covering:

  • Is it possible to create a trust vehicle to hold monies paid in by Party A (the service provider) for the benefit of Party B to ring-fence monies to the equivalent value of services due, in the event that Party A suffers an insolvency event? If so, what type of trust would that be?
  • Trust
  • Existence of trust
  • Sham trusts
  • Risk management
  • Contract considerations

Is it possible to create a trust vehicle to hold monies paid in by Party A (the service provider) for the benefit of Party B to ring-fence monies to the equivalent value of services due, in the event that Party A suffers an insolvency event? If so, what type of trust would that be?

Trust

A trust would effectively mean the money is held in a separate account for the customer’s benefit only and therefore on an insolvency situation, the money is effectively left out of the ‘pot’ for creditors and would go straight to the customer, see Practice Note: Proprietary claims.

Existence of trust

The first consideration will be whether the vehicle used will be a trust.

A trust will involve the settlor, the original owner of property, conveying it to one or more trustees and manifesting an intention that it is to be held on trust for one or more beneficiaries. The trustees become owners at common law and hold the property or rights in trust for the beneficiaries (cestuis que trust) for that purpose.

In order for a settlor to create a private express trust the

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