Vol 6 (2009) - Issue 5

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Moriarty v Various Customers of BA Peters plc (in administration) [2009] EWCA Civ 1604 and the Implications for Trust Assets in an Insolvency

1. General position for trust assets

The liquidator or administrator of a company which has entered insolvency must identify the assets that comprise the insolvent estate and, more importantly for the purposes of this article, those which do not. The estate will include only those assets that the company has full entitlement to; assets held on trust for third parties will not form part of the insolvent estate for distribution purposes. These trust assets must be ringfenced and returned to their actual owners.

A creditor whose assets are held on trust by a company will have a proprietary claim over and be entitled to trace the assets held. Such a creditor will have either full entitlement to the value of the specific asset, or will have a claim for a pro rata share of a pool of similar trust assets. Once a creditor’s trust assets have been successfully traced, the claim over the assets established and any rival claims over such assets determined, the proprietary claim should be paid out at the earliest possible opportunity.

Establishing proprietary rights over an asset will, however, substantially depend on the nature of the contractual documentation underlying the relationship with the insolvent company. This article examines the Court of Appeal’s approach to proprietary rights over trust assets in the Moriarty case.

2. The Moriarty case

2.1. The facts

BA Peters plc (the ‘company’) entered into administration on 14 August 2007. Prior to its insolvency the company had been engaged in the sale, purchase and brokerage of boats. When the company entered into administration its current account was substantially overdrawn. The client account, however, was in credit and the administrators were able to trace the monies held therein to clients and customers of the company and certain bank credits.

The company had acted as broker for Mr and Mrs Atkinson in respect of the sale of the Atkinsons’ yacht. The Atkinsons were assured by an employee of the company that the proceeds of the sale, less the company’s commission, would be held in the company client account. The company, however, paid the vast majority of the sale proceeds into the current account instead of the client account (with only the comparatively small remainder being placed in the client account). The monies were originally intended to be used to purchase a new yacht for the Atkinsons with the company acting as agent. The Atkinsons did not receive their money back, nor did they receive delivery of their new yacht.

Similarly, Mr and Mrs Clarke entered into a contract to purchase a yacht through the company. The Clarkes advanced almost 50% of the purchase price to the company (which they were assured would be kept in the client account). The monies were actually paid into the current account and the Clarkes did not receive the yacht they had attempted to purchase.

There was a surplus of funds remaining in the company client account after all other trust property contained therein had been traced and returned to the respective owners. The administrators made an application for directions to the Companies Court.