Liquidators Follow the Money to Trace Missing £500,000

In a classic case of 'following the money', determined liquidators have succeeded in tracing £500,000 which was paid out of a company's bank account shortly before it became insolvent, owing more than £1.4 million to the tax authorities.

The company was in dire financial straits when the money was wrongfully paid by one of its directors into a bank account in Latvia. That payment had immediately rendered the company insolvent and it went into creditors' voluntary liquidation shortly thereafter.

On the same day, the dollar equivalent of £500,000, less bank commission, was transferred by another financial institution to the account of one of the director's close business associates in Singapore. A few days later, the associate paid $100,000 to the director and his wife.

The liquidators launched proceedings and persuaded the High Court that the money paid by the director could be traced to the associate. The latter was also found to have been 'unjustly enriched' by his indirect receipt of the misappropriated money and was ordered to reimburse the liquidators in full.

In appealing against that decision, the associate argued that the liquidators had failed to establish an unbroken chain of transactions leading to him or that the sum that he had received in fact had its origin in the misappropriated money. It was said that the $100,000 he had paid the director and his wife was consideration for a business transaction and that a tracing claim had not been made out.

In dismissing the associate's challenge, however, the Court of Appeal noted the close links between him and the director and his family. The money transfers had been completed in swift succession and there was sufficient evidence that the transactions were causally linked. The associate had been unjustly enriched in that he had received a 'gratuitous benefit by a circuitous route'.

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