Home Insights TGIF 11 February 2022 – Keep friends Quistclose and your enemies Quistcloser

TGIF 11 February 2022 – Keep friends Quistclose and your enemies Quistcloser

This week’s TGIF considers the decision in Re BBY Limited (Receivers and Managers Appointed) (in liq) [2022] NSWSC 29, where the Court discussed the necessary elements of a Quistclose trust in the context of alleged unfair preferences.

Key Takeaways

  • In order for a Quistclose trust to be established, parties must have a mutual intention that the money provided be used only for the specified purpose. The Courts will assess this intention objectively.

  • Payments which can be properly characterised as the subject of a Quistclose trust will not be classified as a ‘transaction’ for the purpose of section 588FA of the Corporations Act.

  • Claims of retrospective solvency on the basis of the availability of funds from a related party must be supported with clear evidence of that party’s willingness and ability to provide the funds at the relevant time.

What happened?

Between 8 January 2014 and 16 April 2015, BBY Limited (BBY) and its holding company, BBY Holdings Pty Ltd (BBY Holdings), a stockbroking and asset management firm, made a series of payments to Ficema Pty Ltd (Ficema).

In June 2015 the BBY companies were placed into liquidation.

Liquidators of BBY and BBY Holdings alleged that six of the payments to Ficema were interest payments on loans advanced by Ficema to BBY. The seventh payment was alleged to be the repayment of a $3 million loan from Ficema to BBY.

The liquidators contended that these seven payments were unfair preferences, and hence, voidable transactions.

In defence, Ficema submitted that the loan of $3 million was in actuality subject to a ‘Quistclose trust’ established for the purpose of BBY meeting a potential margin call, with the effect that its repayment did not constitute a ‘transaction’ within the meaning of section 588FA(1).

Further, Ficema argued that BBY was solvent at the time of the relevant transactions, owing to the availability of $4 million of funding from one of its directors throughout 2014. Ficema relied on two bases to support this contention:

  • prior contributions from the director to BBY in the form of share acquisitions in 2006 and 2011 and loans in 2011 and 2013 totalling $2.5 million; and

  • a $4 million loan provided by the director to BBY in December 2014.

The decision

Quistclose trust

In its consideration of the nature of the $3 million payment to BBY, the Court affirmed that in order for a transfer of assets to be characterised as a Quistclose trust, the court will look to whether the parties outwardly manifested a mutual intention that:

  • the transferred money was provided for a specific purpose; and

  • the transferee be subject to restrictions on the use of the money for any other purpose.

Crucially, the Court is not concerned with the ‘real intentions of the parties’.

In this case, the Court found that neither of the required intentions were objectively manifested by the parties. The director who facilitated the transfer from Ficema, was not aware of the specific purpose to which the $3 million was to be applied (i.e. the payment of the margin call). His only awareness of the reason for the transfer was that the money was needed to deal with ‘a problem’ in relation to the relevant securities transaction.

Moreover, Ficema imposed no restrictions or conditions on BBY in relation to its treatment of the funds, other than its repayment within a short time-frame. Relevantly, no request was made for BBY to segregate the $3 million from its general assets.

Interestingly, the Court confirmed that had the $3 million been impressed with a Quistclose trust, its return to Ficema would not have been an unfair preference transaction. This is because BBY would never have held an interest in the funds and so it’s repayment to Ficema would not have been a ‘transaction’ for the purposes of section 588FA.


The Court closely considered the evidence of the financial health of the BBY Group. In doing so, it held that a finding of solvency on the basis of the availability of funding from a related party, such as a director, is contingent upon that party being willing and able to provide the required funds. Here, the Court found that it was not possible to infer that the relevant director was willing to provide BBY with sufficient working capital throughout 2014.

Equity finance in 2006 and 2011, and loans from the director in 2011 and 2013, were held to be irrelevant by the Court, given the existence of evidence that the director had changed his view of BBY’s prospects of financial stability in the intervening period.

Further, the Court specifically noted that it was not possible to equate ad hoc financial assistance with longer-term financial support.


If transacting parties wish to establish a Quistclose trust, it is imperative that they objectively manifest the requisite intentions, by clearly particularising the purpose of the transfer and setting clear restrictions on the transferee’s treatment of the transferred assets.

This decision also confirms that claims of solvency based on the availability of funds from a related party will be subject to close scrutiny of the willingness and ability of that party to provide the funds as claimed.


Restructuring and Insolvency

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