L&S Accounting v Shiloh Holdings: Constructive Trusts Over Properties Bought With Misappropriated Company Funds

Key Takeaways

1. If company money has been misappropriated by directors and used to purchase property, the court can impose a constructive trust, enabling the company to recover direct ownership of the asset.
2. Failure to act quickly when misappropriation is suspected increases the risk that assets are dissipated or transferred, making recovery much harder.
3. The High Court allows companies to trace misappropriated funds through mixed bank accounts, especially when directors breach fiduciary duties.
4. A constructive trust over misappropriated company funds is more powerful than a simple money judgment, offering a priority proprietary claim over the asset.
5. If a connected company or associate receives property acquired using misappropriated funds, the court can hold that entity liable as a constructive trustee where knowing receipt or close identity with the wrongdoer is present.
6. Our solicitors assist clients with freezing orders, proprietary injunctions, and detailed tracing to follow company money into property or new accounts.

Book a free consultation with our expert team if you need to protect or recover company assets.

Recovering Properties Purchased with Misappropriated Company Funds

A recent High Court decision has reinforced the powerful remedies available where directors misuse company money to acquire property in their own or connected companies’ names. In L&S Accounting Firm Umbrella Ltd (in liquidation) v Shiloh House Holdings Ltd [2026] EWHC 618 (Ch), the court granted summary judgment in favour of a liquidated company, imposing a constructive trust over three Bedford properties originally acquired with misappropriated company funds.

This ruling demonstrates how the courts will robustly apply tracing principles, override corporate structures used to avoid liability, and recognise the realities of control and benefit behind formal ownership. It shows that companies and liquidators can pursue proprietary claims to recover assets even after funds have passed through mixed bank accounts or connected parties. The case also clarifies the exceptional circumstances when a company not party to earlier proceedings can still be held bound by earlier findings.

Permission to appeal this decision has been granted, with a Court of Appeal hearing scheduled for January 2027. Directors, shareholders, creditors, and professional advisers should keep the evolving position in view.

Background & Context

The Key Parties and Properties

• L&S Accounting Firm Umbrella Ltd (in liquidation): Claimant company, which entered voluntary liquidation after suspected fraud.
• Shiloh House Holdings Ltd: Defendant company, which acquired three Bedford properties:
  • Unit E, Midland Road (August 2022)
  • 38 Water Lane (between August 2022 and February 2023)
  • 6 Vulcan Street (February 2023)
• Mr and Mrs Oronsaye: Former directors of the claimant, also controlling Shiloh. Though Mrs Oronsaye purportedly resigned as director after incorporation, evidence indicated ongoing control.
• Both were shareholders in Shiloh, together with their minor children.

The 2024 Judgment

In July 2024, the court found that Mr and Mrs Oronsaye had used Umbrella as a vehicle for HMRC fraud, diverting company proceeds into various assets. A freezing order followed. Shiloh was not a party to those proceedings. That judgment became final, with no permission for appeal.

The Current Claim

Umbrella (through its liquidators) alleged that the Oronsayes diverted company funds to acquire the three Bedford properties through Shiloh. The properties were frozen by proprietary injunctions, and Umbrella sought summary judgment to declare them subject to a constructive trust representing the traceable proceeds of the original misappropriation. Shiloh argued they were not bound by the 2024 judgment and that the Oronsayes had their own legitimate resources.

Why This Matters

This claim sits at the crossroads of directors’ duties, tracing company assets, proprietary remedies versus personal claims, and the boundaries of corporate personality. The question: can a non-party company (here, Shiloh) be held responsible when directors use misappropriated funds to purchase assets in its name?

The Summary Judgment Standard

The court will grant summary judgment if a defendant has no real prospect of succeeding in their defence and there is no other compelling reason for trial (CPR 24.3).

“Real prospect” means more than a merely arguable case—the defence must carry some genuine conviction (ED & F Man Liquid Products v Patel [2003] EWCA Civ 472). A defence that is fanciful or unsupported by plausible evidence will not block summary judgment. The key principles are set out in EasyAir Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) and further supported by Swain v Hillman [2001] 2 All ER 91.

The court takes particular care in dishonesty cases, but as in King v Stiefel [2021] EWHC 1045 (Comm), can and should grant summary judgment where the available evidence is clear and further disclosure is unlikely to change the essential position.

Is Shiloh Bound by the 2024 Judgment?

The Issue

Umbrella leaned heavily on findings from the 2024 judgment, particularly about the conduct of the Oronsayes. Shiloh argued that because it was not a party to those earlier proceedings, those findings could not bind it.

Court’s Decision: Two Separate Grounds

1. Privity of Interest (Res Judicata)

Courts ordinarily require that only actual parties to a judgment are bound. However, an exception arises if a non-party (Shiloh) is a “privy” of the original defendants—meaning there is a sufficient degree of identification and common interest that it is just to bind them (Gleeson v Whipple & Co Ltd [1977] 1 WLR 510). In the corporate context, this is rare, especially as separate legal personality is a core principle (PJSC National Bank Trust v Mints [2022] EWHC 871 (Comm)).

Some key factors supporting privity in this case:

• Unit E was initially to be purchased by another company controlled by the Oronsayes, then switched at the last minute to Shiloh after payment of deposit.
• There was no evidence of arm’s-length behaviour. The companies, their assets, and litigation were all managed interchangeably by the Oronsayes.
• The evidence and defences run by Shiloh mirrored those of the prior defendants.
• Litigation on behalf of Shiloh was directed exclusively by Mrs Oronsaye, with no visible participation by the named director.

The judge found that “short of veil piercing,” the connection could not have been closer. These features established a “strong community of interest,” so Shiloh was bound by the earlier judgment as a privy.

2. Abuse of Process

Even if not a privy, it is an abuse of process for a non-party to relitigate an issue already decided where doing so would be manifestly unfair or bring the justice system into disrepute (Secretary of State for Trade and Industry v Bairstow [2003] EWCA Civ 321).

Here, the claim in both proceedings was nearly identical, relying on the conduct and funds of the Oronsayes. The only reason Shiloh had not been included in the original claim was the Oronsayes’ failure to disclose relevant information—a breach in itself. Allowing Shiloh to defend on the same points would be both unfair to Umbrella’s creditors and undermine confidence in the system.

Courts therefore have robust tools to prevent relitigation via new companies or nominees, particularly where non-disclosure and strategic shifting are used to avoid prior adverse findings.

Tracing Through Mixed Accounts

The Tracing Problem

Tracing allows a claimant to identify assets that represent their original property, even after transfers or mixing with other monies. The challenge arises when misappropriated funds are placed into an account containing both legitimate and illegitimate monies and used to acquire property.

The Legal Approach

The court cited Shalson v Russo [2003] EWHC 1637 (Ch). Normally, if a trustee (or director) uses money from a mixed fund, it is presumed they spent their own money first. However, this is not an inflexible rule. If assets were acquired soon after the deposit, claimants are entitled to “the cherries”—the asset or its traceable proceeds—particularly where wrongdoing is involved.

The James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62 “lowest intermediate balance” rule limits tracing to the lowest account balance between deposit and withdrawal. New monies paid in after the account drops below the trust amount cannot be captured.

Applied to L&S Accounting v Shiloh Holdings, the court found that, with the exception of minor sums for auctioneers’ commissions, all purchase payments could be traced back to the misappropriated company funds, regardless of mixing.

Knowing Receipt: The Legal Test and Application

Tracing is not enough for recovery—claimants must also establish a proprietary claim entitling them to the specific asset. The court here relied on the well-established three-part test for knowing receipt from El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685:

1. Disposal of the claimant’s asset in breach of fiduciary duty.
2. Beneficial receipt by the defendant of assets traceable to the claimant’s property.
3. Knowledge on the part of the defendant that the assets received were traceable to a breach of duty.

The court found all elements satisfied:

• The Oronsayes’ breach of duty was established by the 2024 judgment.
• Shiloh had beneficially received the properties, which the court accepted as traceable proceeds.
• Knowledge of the wrongdoing was attributed to Shiloh, since the Oronsayes were the effective controlling minds behind the company and its property dealings, notwithstanding the formal appointment of another director.

Once established, the court grants a constructive trust over the properties—giving the aggrieved company a proprietary interest. In L&S Accounting v Shiloh Holdings, the proportions matched the extent to which company funds were traced directly or indirectly into the asset purchase.

Defences Rejected by the Court

The court rejected each of Shiloh’s principal defences:

• Not bound by previous judgment: Dismissed due to privity and abuse of process.
• Alternative funding sources: No credible evidence supported the claim that the Oronsayes funded the acquisitions from legitimate personal resources. The tracing analysis and prior findings ruled this out.
• Need for a trial: The court had all the facts it needed through extensive disclosure and prior proceedings, and no realistic prospect emerged that new evidence would come to light.

Attempts to discharge the proprietary injunction freezing the properties were also summarily rejected and found totally without merit.

Practical Implications for Companies, Directors, Creditors and Advisers

For Companies and Liquidators

• Tracing remedies are robust. Even through mixed personal accounts, claimants can trace misappropriated funds into acquisitions.
• Proprietary claims give priority. Constructive trusts outrank unsecured creditor claims, benefiting the estate.
• Investigate all connected entities. Especially property acquisitions by directors or close associates around times of suspicious payments.

Investigative Steps:

• Obtain detailed disclosure of directors’ and company accounts.
• Identify all connected companies and properties.
• Analyse patterns of last-minute purchaser substitutions and practical control.

For Directors and Shareholders

• Fiduciary duties are strictly enforced. Attempting to hide assets through new companies or nominee directors will likely fail where control and benefit are established in fact.
• Res judicata and abuse of process apply. Attempting to relitigate findings through a new company or family member risks being bound by the original judgment.

Risk Factors:

• Who truly manages and benefits from the asset?
• Are corporate processes genuine or nominal?
• Is litigation being directed by the implicated individuals?

For Professional Advisers

• Extra diligence is required in property and corporate transactions involving parties subject to previous judgments or ongoing disputes.
• Purchaser substitutions or control by recent judgment debtors should be red flags.
• Litigation risk assessment must consider the real possibility of privity arguments.

For Creditors and Claimants

• Search for assets held by connected companies, not just the judgment debtor.
• Apply promptly for proprietary injunctions to secure property before it is dissipated or encumbered.
• Use bankruptcy examinations or other information-gathering tools as necessary.

The Appeal and Current Status

Permission to appeal has been granted by the Court of Appeal, with a hearing set for January 2027. The main issues likely to be examined are:

• The scope and application of privity doctrine in a corporate setting.
• How the abuse of process doctrine should limit the ability to relitigate issues when connected companies are involved.
• Clarification of tracing approaches through mixed accounts (Shalson v Russo principles).
• How knowledge is attributed for knowing receipt claims.

For now, the summary judgment and proprietary injunction remain in place. Umbrella and its creditors retain security over the properties, and Shiloh cannot deal with or dispose of them pending the appeal.

How Go Legal Can Help

Our specialist commercial litigation solicitors have deep experience with:

• Directors’ duties claims (including breach of fiduciary duty, misappropriation of assets, and diversion of opportunities)
• Proprietary claims and asset tracing (recovering assets through constructive trusts, freezing orders, and forensic tracing)
• Shareholder and company disputes (dealing with connected companies, corporate misuse, and internal conflicts)
• Insolvency litigation (supporting liquidators, administrators, and creditors to recover assets and investigate directors’ misfeasance)
• Urgent interim applications (applying for proprietary injunctions, freezing orders, and disclosure orders promptly to preserve value)

You will deal directly with experienced senior litigators and accredited mediators. Our approach is strategic, rapid, and commercially intelligent. We offer fixed-fee and flexible packages, and are up to 50% more cost-effective than comparable City firms.

If your company has lost assets due to director misconduct or you are facing claims over property acquired from misused company funds, book a free consultation with our team. We act nationwide for companies, directors, shareholders, and professional advisers.

Book a free consultation or call 0207 459 4037.

Constructive Trusts and Director Misappropriation—The Roadmap from L&S Accounting v Shiloh Holdings

Key takeaways:

1. Robust proprietary remedies are available. Companies and their liquidators can trace assets into properties bought with misappropriated funds, even after mixing, via constructive trusts.
2. Connected companies are not safe havens. Family members or new companies used for asset holding can be bound by judgments through privity or abuse of process wherever control and benefit are proven.
3. The courts take a rigorous approach to privity and abuse of process. Non-party companies can be bound by earlier judgments where a strong community of interest is found or relitigation is plainly unfair.
4. Tracing principles favour the victims of breach. The Shalson v Russo rules ensure wrongdoers cannot take advantage of mixing funds—victims are entitled to claim asset “cherries.”
5. Knowledge is readily attributed where control is clear. For knowing receipt, the real managers’ knowledge is imputed, even if a formal director is ignorant.

The decision demonstrates how the courts look to substance, not form, in cases of fiduciary breach. Well-advised companies, creditors, and liquidators can recover substantial value otherwise lost to director wrongdoing. Future appellate guidance may refine the boundaries, but the core principles remain entrenched in English law: follow the money, look behind the structure, and do not permit abuse.

If your company is facing disputes over asset tracing, director duties, or recovery of misappropriated funds, our solicitors are ready to guide you to a practical result.