Asset Tracing as a means of debt recovery in Corporate Insolvency Litigation.


In simple terms, asset tracing is the process of identifying assets through investigations for a particular purpose [without going into the details to answer questions as to who has a legal right to the assets so traced]. Asset tracing can be distinguished from asset recovery which involves the restraining, seizure, confiscating, and return of the assets traced to the rightful owner; it is an assertion of a right.

The nexus between tracing and recovery is that once the tracing exercise is successfully completed, it can then be asked what rights, if any, the claimant can, on his particular facts, assert against the assets traced. These rights can be personal, proprietary, legal, and other equitable rights depending on the subsisting facts.

According to Lord Millett in Foskett v. McKeown and Others, tracing assets is neither a claim nor a remedy. It is merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property.

Tracing is also distinct from claiming in the following ways: –

  1. It identifies the traceable proceeds of the claimant’s property.
  2. It enables the claimant to substitute the traceable proceeds for the original asset as the subject matter of his claim, but it does not affect or establish his claim.
When and why Asset tracing should be used?

The process of asset tracing and recovery is crucial for the successful recovery of misappropriated assets, recovering proceeds of fraud and embezzlement. It is also through asset tracing and identification that financiers can carry out proper due diligence in respect of assets they intend to take as security and investors can access the legitimacy of assets and ventures, they intend to invest in. Additionally, asset tracing and identification is crucial in family law proceedings including succession and divorce as we shall be further discussing in our subsequent articles on this area.

Asset tracing and recovery is also an important tool for creditors as it allows those who are considering instituting claims in court to ascertain unencumbered assets and obtain preservation orders against them to aid in recovery; it also aids in the enforcement of court decrees and judgments which would otherwise be hindered by lack of knowledge of the judgment debtor’s assets.

Asset Tracing in Corporate Insolvency Litigation

In insolvency-related matters, asset tracing is also crucial in the tracing and recovery of property that may have been misappropriated by the directors of the company. Case in point:- in liquidation matters, the insolvency practitioner may need to trace misappropriated assets in the event that he intends to pursue the directors for an offence of fraudulent trading or seek orders against delinquent directors as contemplated in our insolvency laws.

Where specific misappropriated assets can be identified, the liquidator can follow the trail and obtain freezing orders or injunctions and disclosure orders on behalf of the Company in liquidation to prevent the delinquent directors from dissipating the assets as to have the effect of prejudicing the interests of the entire body of creditors.

The liquidator, the official receiver, or the creditor can also invoke the power of the Insolvency Court under Section 504 of the Insolvency Act to undertake an examination into the conduct of the person in relation to whom the application was made. Where the Court finds that the person has misappropriated the company’s assets, the Court may make orders compelling the person: –

  1. to repay, restore or account for the money or property or any part of it, with interest at such rate as the Court considers appropriate; or
  2. to contribute such amount to the company’s assets as compensation for the misfeasance, breach of fiduciary or other duty as the Court considers fair and reasonable.
How can we help?

At Riskhouse, we combine our skills in forensic accounting, forensic investigations, financial & intelligence analysis, understanding of the insolvency process, and digital investigations to perform complex analyses and identify and trace assets of the relevant subjects to satisfy our clients’ needs including; due diligence, recovery of debts and/or proceeds of fraud, enforcement of legal orders,  identification of assets for distribution in family law proceedings, money laundering, resolution of disputes and assessment of cost-benefit of instituting debt recovery claim. With our support, our clients can identify and also assume control of available assets subject to the subsisting contractual relationship with the relevant subject.

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