On January 1st, the first part of the payment, £163,500,000 enters the bank account of the Badchester Borough Council. On January 11th, the Council is declared bankrupt. A private company, Bin-U-Like, who were contractors of the council, are preferred creditors and claim that the £163,500,000 is owed to them for monies unpaid by the Council. Farley’s Bank is demanding the return of the £163,500,000. At the time of the transaction, the Council was acting outside of its statutory powers to borrow money from commercial lenders.Advise Farley’s Bank. Will they be able to claim the return of the £163,500,000? At the time of the transaction, the Borough Council were acting outside of their statutory powers to borrow from commercial lenders.The problem does not show whether or not Farley’s Bank (FB hereafter) is aware that Manchester Borough Council (BBC hereafter) is in financial dire straits. This question is directly related to the question of the purpose of the loan which the problem also withholds. Both issues impinge upon whether a trust relationship is created between BBC and FB and what kind if any.The given facts of the case seem to suggest that the loan was made for the purpose of transfusion of liquid capital into the bloodstream of the defendant BBC. The fact that the forbearance was made with consideration, the down payment of one million pounds, is irrelevant to the issues.In the present problem, FB’s aim is to recover money paid over as a loan and has great chances of doing so under equity procedures of trust1. In order for liability to follow, it must first be established that the money was subject to a trust and that the defendant BBC is in breach of this trust by declaring bankruptcy the following week after the first part of the loan payment was deposited to their account.