Equity and the Laws of Trust consultation paper

Express Christmas Hampers Ltd. (ECH) is a company supplying Christmas hampers to members of the public who pay a certain amount every month and at the beginning of December receive their hampers. This is a way for customers to spread the cost of Christmas one or two years in advance. Between 2004 and 2014, ECH was very successful and its directors were considering taking the company public to grow the business.

However, in January 2016, after a poor Christmas, ECH began facing financial difficulties. Its directors are aware that the company is holding a large amount of money belonging to customers (6.3m) in a bank account separate from its main current account at HSBC. They are concerned that should ECH be liquidated, its creditors will seek to use customer money to defray the companys debts which total 12.3m. These are made up of the following:

1.7.5m to HSBC for ECHs current account overdraft;
2.4.5m to Cicero Finance Ltd. paid to ECH for the sole purpose of paying dividends to ECHs shareholders (held in a third bank account at HSBC);
3.300,000 to private investment group, Quintilian Holdings Ltd.

Aware that ECH is in substantial difficulty and wanting to ensure its debts are repaid, ECH has received a demand from HSBC that its overdraft be repaid in full. The demand mentions:

1.The 6.3m of customers money;
2.The 4.5m from Cicero Finance Ltd.

HSBC says in light of these holdings, ECH should have no difficulty repaying the money.

You have been instructed to advise ECHs company secretary on the following:

i.How can ECH protect the money belonging to its customers?
ii.Is the money borrowed from Cicero Finance Ltd. protected from HSBCs claim?

The company secretary is aware of the general legal principles involved but seeks your advice on the matter so she can reassure and brief ECHs directors. You should use technical language and legal authorities to support your detailed advice on the above two matters.