Jersey’s Royal Court determines that the rights of creditors of an insolvent Jersey Trust rank pari passu

The Royal Court of Jersey has recently held that the claims of both former and new trustees of an insolvent Jersey trust, arising under their respective indemnities and equitable liens, rank pari passu.

In Re Z Trusts [2018] JRC 119, the latest instalment in the ongoing Z Trust litigation, the Royal Court was asked to determine the nature of the< equitable rights of a former trustee and whether those rights take priority over the other claimants to the assets of an insolvent trust.

The questions before the Court arose as a result of the original trustee (the Original Trustee) having sought to rely on the contractual indemnities afforded to it upon its retirement - several years after having signed the Deed of Retirement and Appointment, the Original Trustee sought to claim reimbursement of £18million that it had incurred as a result of having settled proceedings that had been brought in England as against the former directors of a company within the trust structure. The former directors were employees of the Original Trustee and had thus been supplied by them. An allegation of vicarious liability was also made against the Original Trustee, in addition to a claim that it acted as a de facto and / or shadow director of the underlying company during the relevant period.

As the trust was insolvent (that is to say, that the assets held on trust by the trustee were insufficient to meet the claims to those assets), the issue of priority was of great importance to the Original Trustee - had it been the priority creditor, it would have recovered all of the Trust’s assets (assessed as being in the region of £6million), a far less significant shortfall than the £330,000 that it would recover were it required to share the assets of the trust pari passu with the other creditors.


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Fritha FordSenior AssociateT +44 (0) 1534 700