Insolvent trusts

The Royal Court of Jersey has now decided Re Z Trusts [2018] JRC 119, in which it had to determine the priorities of competing claims over the assets of an insolvent trust, i.e. a trust where the assets were inadequate to meet the demands over them.

There were contests between (i) a former trustee and its trust creditors and (ii) a former trustee and the current trustee. The first contest can arise only where, for some reason (in this instance Trusts (Jersey) Law 1984, art 32), the trust creditor cannot simply hold the trustee personally liable without regard to the amount of the trust assets.

In both cases the court held in favour of a pari passu distribution and not for one based on the order in which the liabilities were incurred.

The question is an important one and we can expect to see more about it.

Nicholas Le Poidevin, Q.C.
New Square Chambers