Jurisdiction(s):
United Kingdom

Key definition

Quistclose trust definition

What does Quistclose trust mean? A Quistclose trust describes a loan advanced for a specific, ring‑fenced purpose, with the loan monies held on trust pending their application to that purpose. If the purpose is properly carried out, the trust ends and the relationship reverts to a standard debtor–creditor arrangement. If the purpose fails or the borrower misapplies the funds, the monies are held on trust for the lender, who may reclaim them (including on the borrower’s insolvency), subject to defences such as bona fide purchaser. The concept is case law based. In England and Wales and Northern Ireland it stems from Barclays Bank v Quistclose Investments...

Purpose clauses in facility agreements: establishing Quistclose trusts, insolvency protection, illegality risks and lenders' monitoring carve-outs

Published by a LexisNexis Banking & Finance expert

Practice notes

This Practice Note examines what a purpose clause in a facility agreement is. It also outlines what Quistclose trusts are, the circumstances in which they arise, and why they are relevant to purpose clauses in facility agreements. Where appropriate, it signposts relevant provisions in:

Precedent: Facility agreement (term loan): single company borrower—bilateral—with or without security or a guarantee
the Loan Market Association (LMA) investment grade multicurrency term facility agreement with/without observation shift (the LMA investment grade facility agreement)
the LMA senior multicurrency term and revolving facilities agreement for leveraged acquisition finance transactions with/without observation shift (LMA leveraged facility agreement)

The other LMA standard form facility agreements, eg the LMA Senior Single Currency Term Facility Agreement for Real Estate Finance Multiproperty Investment Transactions, also include sample purpose clauses. LMA documents are available to LMA members on the LMA website.

What is a purpose clause?

Most facility agreements include a clause setting out the purpose(s) for which the loan proceeds must be applied...

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Web page updated on 21/05/2026

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