Lending to a Trust
Trust Law International, Vol. 19, No. 2, Spring 2005
22 Pages Posted: 14 Jul 2005 Last revised: 13 May 2017
The use of trading or business trusts in the Commonwealth has created difficulties for creditors accustomed to lending to incorporated entities, where they have direct claims ultimately enforceable against a separately constituted fund. In contrast, creditors lending to a trust have first to look to the trustee for repayment. They are able to reach the trust fund only indirectly through being subrogated to the trustee's right to be indemnified from the fund in incurring the debt. That right, however, presupposes that the trustees have acted properly in administering the trust, and may consequently be lost or unavailable without a creditor realising it. It is suggested here, as is the case with the corporate form, that a creditor should be able to enforce its claims directly against the trust fund even where the trustee has acted wrongfully or without authority, so long as the creditor was unaware of any breach of duty by the trustee or limitations on its authority.
Keywords: General, property law, corporation and securities law, personal bankruptcy law
JEL Classification: K10, K11, K22, K35
Suggested Citation: Suggested Citation