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What to do if the golden egg hatches (or you need to trace into the fraudster's other assets)

24 April 2019. Published by Davina Given, Partner and Emma West, Associate

It can be advantageous for a victim of fraud or corruption to show they have a proprietary interest in a fraudster's prized asset (the golden egg). If a fraudster becomes insolvent, an award of damages will be satisfied only once their secured creditors have been paid, which could leave the victim out of pocket. However, if the victim has a proprietary interest in the golden egg, their interest in it (and assets deriving their value from it) will take priority to those of the secured creditors.

Just like the most tempting Easter eggs, a fraudster is unlikely to hold on to a golden egg for very long. It may be easy to follow the golden egg, so if the fraudster gave it to his friend at Easter, the egg-hunter could claim it straight back from the friend.

The hunt gets harder if the golden egg hatches or its value is transferred to another asset, and the egg-hunter must try to show that they have a proprietary interest in that asset. For example, if the fraudster sold the golden egg to one of his cronies and they cannot be found, the egg-hunter may try to trace the sale proceeds into the fraudster's bank account.

The rules of tracing are extremely complicated, but in essence, the egg-hunter's ability to claim the funds in the bank account, or the assets purchased with these funds, depends on the basket into which the proceeds of sale were placed. If the basket (bank account) contains the fraudster's eggs, then it is presumed that any asset was purchased using the egg-hunter's funds, unless the fraudster can prove the contrary. If the basket contains the eggs of an innocent party, the egg-hunter and innocent party will be treated equally and there are various methods to courts use to achieve a fair outcome.

The trail runs cold if a fraudster eats the egg (dissipates the asset), or sells it to a third party who has no notice of the egg-hunter's interest. An egg-hunter's attempt to show a proprietary interest in the fraudster's assets will be eggs-hausted.