If you spend plenty of time around insolvency professionals like I do, you tend to hear the phrase “equitable tracing” (“ET”) thrown around a bit.
Imagine you gave Joe $50k to start-up a new venture.
Joe is lacking morality and instead uses that $50k to pay off his mortgage.
ET could come to the rescue.
It allows you to identify the new asset ($50k share in the house) from the old asset ($50k loan), notwithstanding a mixing of funds or assets.
If you can trace these funds, then you could claim a constructive trust (meaning you own an interest in the house), etc.
ET WILL NOT apply if the funds are in an overdraft or loan account.
This is regularly forgotten.
Yesterday, I wrote a post about a case where the Court ‘superimposed a s588FF remedy’, subject to the Plaintiff’s right to equitably trace the funds in question.
Because the funds were paid into a loan/liability account, the Court could not trace funds that did not continue in existence, actual or notional, or be identifiable at every stage.