THE TREATMENT OF TRUST ASSETS IN ENGLISH INSOLVENCY LAW
It is in the context of insolvency law that the distinction between proprietary rights and personal monetary obligations is likely to be most significant. The personal rights of beneficiaries may be of no value against an insolvent trustee; beneficiaries may be wholly dependent on their proprietary rights to the trust assets. This chapter is concerned with the treatment of property held by an insolvent person on trust for one or more third parties. It is not concerned with the situation in which a beneficial interest in property, held on trust by a third party, constitutes part of an insolvent estate. The existence of a perfected trust obligation enforceable by or on behalf of a cestui que trust will necessarily be assumed. Such questions are discussed elsewhere.
The treatment of trust assets will be examined in the context of the six principal English insolvency procedures which are the subject matter of the Insolvency Act 1986: liquidation, administrative receivership, administration, corporate voluntary arrangements, and, in the context of personal insolvency, bankruptcy and individual voluntary arrangements. With the exception of administrative receivership, these are collective insolvency procedures. The purpose of liquidation is to realise the assets of a company and to distribute the proceeds to creditors (and to shareholders if there is a surplus) in accordance with a statutory scheme. Liquidation is a terminal procedure; it results in dissolution of the company, that is the extinction of its legal personality. There is no concept of discharge from liquidation. Liquidation occurs either as a result of judicial process (compulsory liquidation) or in an extra-curial form initiated by shareholders' resolution (voluntary liquidation). Bankruptcy is the personal insolvency equivalent of compulsory liquidation. There is, however, a distinction which is very significant in the context of this chapter. Apart from rare cases under s. 145 of the Insolvency Act 1986 where property is vested in the liquidator, a liquidator always acts as an agent of the company.1 Bankruptcy differs from compulsory liquidation (and from all other insolvency procedures described in this chapter) because the assets of the bankrupt automatically vest in the____________________