Liquidators and administrators – are the assets of the company subject to a Quistclose Trust?


Take-home points

  • A Quistclose trust arises where a creditor has lent money to a debtor for a particular purpose. In the event that the debtor uses the money for any other purpose, it may be considered to be held on trust for the creditor. Any inappropriately spent money may then be traced, and returned to the creditor.
  • Liquidators or administrators may find that certain assets in the possession of a company are subject to a Quistclose trust. Those funds will not form part of the assets of the company and are excluded from the ordinary insolvency process.
  • Quistclose trust are not caught by the provisions of the Personal Property Securities Act 2009 (Cth). This may create a false impression that assets the subject of a Quistclose trust which are not registered under the PPSA increase the liquidity and assets of a creditor.
  • Liquidators, administrators and trustees in bankruptcy should carefully examine documents and correspondence to determine if certain money or assets have been lent for a specific purpose. Importantly, they should determine whether or not there is a mutual intention (either express agreed or agreed by implication) between the parties about what should happen with the assets if the specific purpose is not achieved.

Often in commercial transactions, a party may advance money on credit to another party on the mutual intention that it be used for a specific purpose (for example, to purchase plant and equipment). The parties may intend that the money be held on trust for the first party until the purpose has been achieved, and if the purpose fails, the money is to be repaid. In such circumstances, this may result in a Quistclose trust arising over those assets.

The classification of Quistclose trusts (sometimes called as a “resulting purpose trusts”) come from the the UK House of Lord’s decision in Barclays Bank Ltd v Quistclose Investments Ltd (1970) AC 567. However, the principles involved in Quistclose trusts have long been recognised by the Courts prior to the pronouncement in Barclays Bank Ltd v Quistclose Investments Ltd such as in Toovey v Milne (1819) 2 Barn & Ald 683 and Re Drucker [1902] 2 KB 237 CA.

A finding that certain assets are the subject of a Quistclose trust will have significant ramifications particularly in the administration of bankruptcies, or a company in receivership or being wound up. Most significantly, an asset which is found to be the subject of a Quistclose trust will not form part of the assets of the Debtor, and will not be available to be distributed amongst the unsecured creditors.

To determine whether or not a Quistclose trust exists, consideration should be given to:

  • What exactly is the trust property – can it be specifically identified and separated from the funds
  • Whether or not the parties had a mutual intention that the assets were to be used for a particular cause or purpose (the “primary trust”)
  • Where the purpose has been fulfilled, it may then create a debt between the lender and borrower once the primary trust has been discharged;
  • Whether or not there was a mutually agreement about how the assets are to be dealt with if the particular cause or purpose is not achieved (the “secondary trust”). For example, is it to be held on trust for a third party which benefits from the purpose specified or is it to be returned; and
  • Whether or not there has been notice of the trust or circumstances to the party holding the asset which give rise to it being bound by the trust.

Ultimately, whether or not a fiduciary relationship can be inferred from an arrangement between parties (whether it be a loan of money, or instructions to pay a third person or purchase an asset) will be determined by the facts of the case.

For example, in the Quistclose case, the facts involved a payment of £209,719 8s. 6d. by Quistclose Investments to an account held by Barclays Bank to loan that money to Rolls Razor Ltd to allow Rolls Razor to meet a dividend it had previously declared. Rolls Razor’s subsequent liquidation did not allow the liquidator or Barclays Bank to access to the money as Quistclose Investments had expressly notified Barclays (through telephone calls and a subsequent covering letter) that the funds were lent for the sole purpose that it be used to meet Rolls Razor’s dividend (which was subsequently not paid before the appointment of the liquidator.)

Other examples of when a Quistclose trust may arise have been examined by Australian courts including in:

  1. Westgem Investments Pty Ltd (Receivers and Managers) (Administrator Appointed) v Saracen Project Management Pty Ltd [No 2] [2012] WASC 358 which involved a company, Westgem, which had entered into an agreement with financiers for the purpose of obtaining funds to develop land. A term of the agreement included that any refunded GST be paid into a nominated account of the financiers.


Westgem transferred monies to a third party, Saracen, as a refund of GST tax input credits paid by the Australian Taxation Office (ATO) to Westgem. The receivers of Westgem commenced proceedings to recover the funds from Saracen arguing the money was held on trust to repay one of the financiers as a clause of the financier’s agreement.

The Court granted an interim injunction requiring the Sarcen to pay the funds into the GST Account held by the financier. It held that there was a prima facie case there had been a breach of trust and on the balance of probabilities, a trust could be inferred over the refunds paid by Westgem to Saracen (which were to be paid into a nominated GST refund account) but not.


  1. Re Australian Elizabethan Theatre Trust (1991) 102 ALR 681 ­where the Court held that a Quistclose trust did not arise on the following facts. The Australian Elizabethan Theatre Trust (the Theatre Trust) sponsored and promoted various Australian arts organisations and donors could obtain tax deductions if they could show that donations had been received by the Theatre Trust “unconditionally”.  On a form produced by the Theatre Trust a term was included expressing the unconditional nature of the donation. Another term was included allowing donors to express a preference as to which organisation funds were to be passed on to. Preferences were advised to the Theatre Trust by donors and the Theatre Trust paid donations into a general account held with the Commonwealth Bank. The funds were never earmarked for the benefit of any particular organisation, though the prospective arts organisations argued that the Theatre Trust held the funds on trust for their benefit.

The Court held (among other things) that based on the facts before it the general intention to create a trust was not present, and there was no “mutual intention” shared by the parties. As such, no Quistclose trust arose in the circumstances.

Quistclose trusts and the Personal Properties Securities Act 2009 (Cth)

Security interests in personal property (in order to take priority over other interests) must, in addition to other requirements, be registered with pursuant to the Personal Properties Securities Act 2009 (Cth) (the Act).

Whether or not a Quistclose trust is considered a security interest for the purposes of the Act may be resolved by reference to section 8(1)(h) of the Act. Relevantly, the Act provides that it does not apply to:

a trust over some or all of an amount provided by way of financial accommodation, if the person to whom the financial accommodation is provided is required to use the amount in accordance with a condition under which the financial accommodation is provided.

Consequentially, security interest in the sense that it is a Quistclose trust is not required to be disclosed on the Personal Properties Securities Register. Liquidators and administrators should be weary when dealing with assets and ought to undertaking a thorough investigation about the circumstances and background in relation to certain assets and funds before distributing any assets.

1 thought on “Liquidators and administrators – are the assets of the company subject to a Quistclose Trust?”

  1. Intersting

    I am involved in a property settlement which contains a business I established and worked for 30 yrs. The wife (left 18 mnths ago) was sole director for last five years (to protect assets) has used this to shut company down and put in liquidation as she was incapable of doing herself. I have many pieces of equipment not on asset register that belong to myself, family and others which the liquidator is claiming to be owned by company simply because the are in the building. The company has no record of purchase and being mine since the say the 80’s I would have trouble finding records.

    Could this situation be considered part of a QUISTTRUST?

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