A claimant who had a proprietary right in an asset prior to the date of bankruptcy may discover that the asset is no longer in the possession or control of the bankrupt or the trustee. The asset may no longer exist or its whereabouts might simply be unknown. The asset might also have been sold to another person under circumstances in which the transferee obtained good title to it. In any of these events, the claimant will not be in a position to assert a proprietary right to the original asset. But this is not necessarily the end of the trail for the claimant. If the claimant can demonstrate that the bankrupt dealt with the original asset and obtained new assets in its place, the claimant may be able to trace the value of the original asset into the new asset and assert a proprietary right to it.
There are two different stages of analysis when a claim based on tracing is raised. The first involves tracing, the second claiming. Tracing is a process that is used to locate the value of the original asset. It is used to identify new assets that were substituted for the original assets. Claiming involves an assessment of the validity and priority of any right that the claimant may enjoy over the new asset. Claims that are asserted as a result of the tracing process often arise in connection with trust property. But tracing is not limited to this context. If a thief steals goods from the owner, sells them, and then goes bankrupt, the owner can elect one of two courses. The owner can follow the goods into the hands of the buyer and seek to recover the goods or their value from the buyer. Alternatively, the owner can claim the traceable proceeds of sale in the hands of the trustee.140In some cases, the tracing exercise is simple. A bankrupt may have sold an automobile and received a cheque in payment of the price. The cheque may still be in the hands of the bankrupt at the time of the bankruptcy. A claimant who has a proprietary right in the automobile may trace the value of the automobile into the cheque and claim a pro-
prietary interest in it. In other cases, the tracing exercise may be more complex. The complexity often arises because the asset is mixed with other assets so that its identification becomes difficult. Such issues would arise if the cheque were deposited into an active bank account, thereby becoming mixed with funds belonging to the bankrupt. The law of tracing provides rules that permit the claimant to...