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The Insolvency Act 1986 gives the court the power to set aside trusts which are created in an attempt to elude personal bankruptcy or corporate insolvency. Similarly, the courts have refused to recognize ‘sham’ trusts where the trust is used so as to give the mere appearance of separating property from the insolvent person’s assets when in reality that person continues to use such property as though it remains entirely their own. Set against this background ‘Quistclose’ trusts are just another means of shielding money against a borrower’s insolvency in loan transactions, yet such trusts are specifically recognized by the court.
In the light of this statement and the current state of insolvency law critically evaluate the justification for such trusts and assess the juridical basis upon which they rest.