Can someone help me with this?

hullaballoo

I'm not great at the old accounting and banking side of things; can anyone decipher this and put it into something understandable?

Headnote of In the Matter of Money Markets International Stockbrokers (in liquidation) (2001) 2 IR 17 wrote:

Prior to its liquidation, Money Markets International Stockbrokers Ltd. ("MMI") carried on business in the State as a stockbroker and was an authorised member of the Irish Stock Exchange. The first plaintiff, who was the official liquidator of MMI, sought the directions of the court concerning the distribution of monies to the credit of the client bank account of MMI.

The second plaintiff claimed the sum of £321,620 against client funds of MMI for option premia in respect of settled stock exchange transactions. It was argued that a trust was created in the client account in favour of the second plaintiff in respect of money debited to individual client accounts for premia for completed stock exchange transactions and the second plaintiff claimedin rem against those monies. MMI had authority to deduct premia in clients' accounts and in due course pay the second plaintiff. It was claimed on behalf of the second plaintiff that once allocated the money belonged in equity to it. In the alternative, it was claimed that there was a constructive trust in favour of the second plaintiff on the basis that it would be inequitable to deny it.

It was argued on behalf of the investors, whose monies were in the client funds, that the second plaintiff could not have a proprietary right in a fund where there were client investors who owed no money to it and as there was no specific fund, there was no properly constituted trust.

Held by the High Court (Carroll J.), in refusing the relief sought, 1, that the debit entry in an individual client account could not be construed as a declaration of trust. MMI had no authority to create a trust. Since the money in this case was never paid out, it never ceased to be client money. None of the clients created any trust in favour of the second plaintiff.

2. That it was not possible to impose a constructive trust on the grounds of unjust enrichment or any other equitable ground. The client creditors of MMI had the share premium payments deducted from their account before their net credit balance was calculated. They had already suffered a loss in respect of this as their contractual liability to pay the second plaintiff remained.

johnnyskeleton

The 2nd Plaintiff (K&H) operated a system whereby they would sell stock to MMI and their accounts would be settled at a later date. MMI's practice was to note down the money that they owed to K&H on a running basis. The usual rule is that a constructive trust cannot be made over unascertainable property (something that is general rather than special - e.g. €20k or a bale of hay as oppsed to a one of a kind painting etc), and what K&H were trying to do is prove that the money that had been assigned to them was specially designated as their money as opposed to MMI's money.

The HC held that there was not a constructive trust. It remained the property of MMI, which was at the time insolvent(i.e. had less assets than liabilities, or they owed more money than they had). This is bad news for K&H because if they were successful they would get all their money and they would get it straight away, whereas the court's decision meant that they would have to take their place in the list of creditors.

Is that what you are looking for, or do you want definitions of the terms?

Victor

There was another case, possibly with MMI (but certainly in recent years), where the money was identifiable as client's money, not the broker's money. Presumably in part because it was in a designated Client Account and htat was held in trust. I think there was some other quirk where it was essentially the only money in the account (say £26,630 out of £26,633).

hullaballoo

johnnyskeleton wrote:

The 2nd Plaintiff (K&H) operated a system whereby they would sell stock to MMI and their accounts would be settled at a later date. MMI's practice was to note down the money that they owed to K&H on a running basis. The usual rule is that a constructive trust cannot be made over unascertainable property (something that is general rather than special - e.g. €20k or a bale of hay as oppsed to a one of a kind painting etc), and what K&H were trying to do is prove that the money that had been assigned to them was specially designated as their money as opposed to MMI's money.

The HC held that there was not a constructive trust. It remained the property of MMI, which was at the time insolvent(i.e. had less assets than liabilities, or they owed more money than they had). This is bad news for K&H because if they were successful they would get all their money and they would get it straight away, whereas the court's decision meant that they would have to take their place in the list of creditors.

Is that what you are looking for, or do you want definitions of the terms?

Thanks a million for that. It's just the clarification I was looking for. Cheers.

johnnyskeleton

Victor wrote:

There was another case, possibly with MMI (but certainly in recent years), where the money was identifiable as client's money, not the broker's money. Presumably in part because it was in a designated Client Account and htat was held in trust. I think there was some other quirk where it was essentially the only money in the account (say £26,630 out of £26,633).

[1999] 4 IR 267 but not [2006] IEHC 349. I think that the big distinction was not necessarily that the money was held in a particular account, but rather that the money was paid by the plaintiff in advance.

Victor

johnnyskeleton wrote:

[1999] 4 IR 267 but not [2006] IEHC 349. I think that the big distinction was not necessarily that the money was held in a particular account, but rather that the money was paid by the plaintiff in advance.

Ah, I think you are right. I was speaking from my memory of contemporaneous reporting.