Re Polly Peck International Plc (In Administration) (No. 2) [1998] 3 All E.R. 812

Greek Cypriot landowners alleged that companies within the Polly Peck group had exploited their land in northern Cyprus without lawful authority after the Turkish occupation. The parent company later sold shares in subsidiaries connected with that activity. While Polly Peck was in administration, the landowners sought permission to pursue a claim against the proceeds of those share sales. They asked for a remedial constructive trust which would give them a proprietary claim ahead of ordinary unsecured creditors. The court considered whether the proposed claim had a sufficiently arguable legal basis to justify proceedings.

Could the court impose a new remedial constructive trust over an insolvent company's assets to give claimants priority which they lacked under the statutory distribution scheme?

The Court of Appeal rejected the proposed proprietary claim. The court could not use a remedial constructive trust to remove the company's beneficially owned assets from the statutory insolvency scheme and give the applicants an unprovided-for priority. Mummery LJ distinguished enforcement of existing property rights from a judicial redistribution of assets which belonged beneficially to the company. A moral claim arising from alleged exploitation of land did not establish the necessary proprietary entitlement to the parent's share-sale proceeds. The application therefore lacked the required arguable basis for that remedy. The decision did not prevent claimants from enforcing genuine pre-existing trust rights merely because the legal owner subsequently entered insolvency.

English courts do not impose a discretionary remedial constructive trust simply to give a claimant priority over an insolvent company's creditors. Existing proprietary rights may be enforced, but the statutory distribution scheme cannot be rewritten through a general appeal to fairness.

Re Polly Peck helps distinguish institutional rights, which arise from recognised legal events, from a remedy creating ownership at the court's discretion. Compare FHR, where the fiduciary rule establishes a proprietary entitlement, and Muschinski, which illustrates a different Australian setting. The distinction matters most visibly in insolvency because creating one person's priority reduces assets available to others. The decision does not make tracing redundant; tracing still requires an independently established proprietary foundation.