Trusts and credit risk: the Quistclose trust and lenders’ risks in loan finance

Abstract

Abstract The article evaluates the case of Barclays Bank Ltd v Quistclose Investments Ltd (1970) in the light of the lenders’ risks when providing loan finance to their commercial customers. A “risk profile” is established which identifies the main risks that may occur during the lending process. Significantly, the article shows that the trust identified by Lord Wilberforce in Quistclose is most important for managing and mitigating the “credit” risk that can often occur on a loan because of the borrower’s default. Quistclose changes the usual “at arm’s length” nature of lending and provides obligations that are of a fiduciary character.