Proprietary claims
Proprietary claims

The following Restructuring & Insolvency practice note provides comprehensive and up to date legal information covering:

  • Proprietary claims
  • Trust principles
  • Constructive trust
  • Quistclose trust
  • Interaction with pari passu principle
  • Interaction with preferences/transactions at an undervalue
  • Interaction with a moratorium

Creditors are often keen to establish proprietary claims as they create rights in rem (which attach to the property itself) rather than personal claims (which just attach to a person). This difference is particularly important when a company enters insolvency as assets subject to proprietary claims will not form part of the distressed company's estate, so the holder may be able to make a full recovery, rather than having to prove as an unsecured creditor in the liquidation/administration and wait for a dividend (which usually takes several months and is often less than a 50% dividend). Effectively, proprietary claims leap-frog over secured and preferential creditors in the waterfall of priorities as the assets are ring-fenced for the benefit of the holder of the proprietary claim.

For specific guidance on proprietary claims over client money, see Practice Note: Lehmans—client money issues and for payment waterfalls, see Practice Note: Waterfall of payments—a comparative guide.

Trust principles

Proprietary claims are usually based on principles of trust law, which require the existence of the following certainties to create a valid trust (Re Sendo International (in administration)):

  1. subject matter—the asset must be identified (this may be a problem if the asset has been worked on, incorporated into a new product, or mixed with other assets). It's also generally harder to identify assets with the passage of time

  2. objects—the beneficiary must be identified

The

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