Commingling and the lowest-intermediate-balance rule

Assets rarely disappear. They commingle – and commingling is where most tracing cases are won or lost.

The lowest-intermediate-balance rule is the doctrine that caps a claimant's proprietary claim to the lowest balance a mixed account reached between the moment trust money entered and the moment the claim is brought. It is the most important single rule in follow-the-money asset tracing, and it is also the most frequently misunderstood. Understanding it early – before records are requested, before relief is sought – determines whether a proprietary or a personal remedy is the realistic objective.

This analysis works through the rule's logic, its limits, and the tracing strategies that operate around it, including the contrasting doctrinal positions that courts in different legal traditions have reached.

What commingling means for a tracing claim

Commingling occurs when trust money – funds belonging to or impressed with a claimant's equity – is paid into an account that already holds other money. The moment that happens, the claimant's funds lose their physical identity. They are no longer a distinct parcel of notes or a segregated balance. They are part of a pool.

That loss of physical identity does not, by itself, destroy the claim. Asset tracing law developed the fiction of following value rather than currency, so that a claimant may assert that its money is represented by whatever remains in the pool. The question is: how much of that pool can the claimant claim as its own?

This is where the lowest-intermediate-balance rule enters. It prevents a claimant from asserting ownership of a value that simply was not there at a material time. If the account fell to zero – or to a level below the trust money that entered – then the trust money is treated as spent. Whatever came in later belongs to the account holder, not to the claimant.

In our experience, this is the rule that most often surprises clients who have already been advised that their money "went into that account". Going in is only the beginning of the analysis. What matters is whether it stayed.

The mechanics: how the rule is applied in practice

The rule operates across three phases. First, the forensic analyst identifies the precise moment the claimant's funds entered the mixed account and the balance at that moment. Second, the analyst reconstructs every debit and credit in the account from that entry point forward. Third, the analyst identifies the lowest balance the account reached at any point during that window.

That lowest balance is the ceiling of the claimant's proprietary claim. It does not matter that the account later recovered – that recovery came from the wrongdoer's own deposits, not from the restored trust money. The trust money is treated as gone the moment the account fell below it.

A simple illustration (with amounts serving as markers, not as predicted figures): trust funds enter a pooled account and the balance rises. The wrongdoer then withdraws heavily for personal expenditure. The balance falls below the entry-point level. Later, the wrongdoer pays in salary and the balance climbs again. The claimant can assert a proprietary claim only up to the lowest point reached – not the later high-water mark. The salary receipts replenished the wrongdoer's own share, not the claimant's.

The practical forensic task is therefore more demanding than simply establishing that money entered an account. Every debit must be reconstructed, and every period of low balance identified. Missing bank statements are not neutral – they are a gap in which the balance might have fallen to zero. That gap must be explained.

Why incomplete records are not the end of the trail

One of the most persistent myths in asset tracing is that incomplete bank records mean a dead trail. In our experience, partial records are the norm, not the exception. The analytical task shifts when records are missing, but it does not stop.

Several tools operate alongside or instead of direct documentary reconstruction. A Bankers Trust order compels a bank to disclose information about a customer's account in tracing proceedings. A Norwich Pharmal order compels a third party – a payment intermediary, a broker, a professional adviser – to disclose information that identifies a wrongdoer or locates funds. These instruments allow a claimant to reconstruct a record set that the wrongdoer has deliberately fragmented.

Where records simply no longer exist – destroyed, never kept, held in a jurisdiction that will not cooperate – forensic inference becomes relevant. Pattern analysis across the records that do exist can establish, with reasonable confidence, whether the account was likely to have remained above the critical threshold. Inference is not certainty, and courts treat it differently from documentary proof. But inference, properly evidenced, has supported tracing claims in cases where the wrongdoer relied on the gaps as a shield.

A matter in the Middle East, autumn 2024, involving a pool of funds in the high six figures, illustrated this precisely. Records from one banking layer were missing entirely. Working from correspondent-bank records, payment references, and the receiving institution's own statements, the forensic team reconstructed the likely minimum balance of the intermediate account at each relevant period. The reconstruction was acknowledged by the court as a sufficient basis for interim relief. The proprietary claim was preserved, subject to the claimant obtaining the missing primary records through disclosure.

The lesson: a gap in records is a forensic problem, not a legal bar. It raises the evidentiary burden; it does not extinguish the right.

To assess how much of a trail is reconstructible from the records currently available, speak with the Axiom Trace asset-tracing team about a preliminary document review.

Contrasting positions: how legal traditions approach the mixed fund

The lowest-intermediate-balance rule as classically stated is a product of common-law equity. Civil-law jurisdictions approach the same problem differently, and the contrast matters when money has crossed a border – which it almost always has in a serious fraud.

In common-law systems (England and Wales, Australia, Singapore, the British Overseas Territories, and others), the dominant position treats the mixed fund through a proprietary lens. The claimant's equity attaches to the fund, subject to the dissipation limit imposed by the lowest-intermediate-balance rule. A proprietary claim survives the wrongdoer's insolvency: the claimant takes before unsecured creditors, provided the proprietary claim survives the balance analysis.

Civil-law systems – represented across much of continental Europe, the Gulf civil codes, and many offshore jurisdictions with civil-law roots – have no direct equivalent of the proprietary tracing claim. Their law of unjust enrichment, enrichissement sans cause, or ungerechtfertigte Bereicherung produces a personal claim for restitution, not a property right over a specific pool. That distinction has three practical consequences.

First, in insolvency, the civil-law claim ranks as unsecured. A claimant who has traced its money into a fund in a civil-law jurisdiction has a claim against the estate, not over the asset. Second, the lowest-intermediate-balance rule, as such, does not apply in the same way – because there is no attempt to identify a specific res. Third, some civil-law systems are more generous about presumptions of mixing when a fiduciary relationship is established; the personal remedy may carry a higher quantum where the enrichment was deliberate.

For a claimant whose money has moved across borders, the choice of forum determines which system applies. A worldwide freezing order obtained in a common-law court can, in principle, reach assets outside the forum – but the underlying proprietary claim must be recognisable in the enforcing jurisdiction for a judgment to be recognised and enforced there. This is the enforcement gap that cross-border recovery must manage.

The New York Convention provides for recognition and enforcement of foreign arbitral awards across most states. Where the underlying dispute is capable of arbitration – and commercial fraud disputes sometimes are – an arbitral award may travel more reliably than a court judgment. The tracing analysis itself, however, is the same: the award must quantify what was lost and where it went.

Can the rule be displaced, and by what means?

The lowest-intermediate-balance rule is not absolute. Several doctrinal routes allow a claimant to argue for a different result – or to recover more than the rule, strictly applied, would allow.

Backwards tracing is the most contested. Classical tracing is sequential: a claimant must follow money forward from entry to current location. Backwards tracing allows the court to find that a payment out of an account was already planned at the moment trust money came in – so that the trust money effectively funded the prior withdrawal. Courts in several common-law jurisdictions have accepted backwards tracing in principle, though its application remains fact-specific and contested. It is relevant when a wrongdoer structures transactions to defeat the sequential logic of the rule.

Where the account is not merely mixed but the wrongdoer has paid out of it to a third party who is not a bona fide purchaser for value without notice, Chabra relief against that third party may extend the reach of the freezing order. The wrongdoer's shell or nominee becomes a target. This does not displace the lowest-intermediate-balance rule in the first account, but it opens a new tracing chain from the point of payment.

A proprietary injunction against "persons unknown" has been granted in crypto asset cases where the on-chain trail identifies a wallet but not the controller. The injunction runs against the holder of that wallet, whoever they may be. This is a modern adaptation of proprietary tracing to a context where the "account" is a blockchain address and the "balance" is a token holding.

Constructive trust arguments provide a further route. Where a court holds that the wrongdoer became a constructive trustee of the claimant's money from the moment of receipt – because they knew of the breach of fiduciary duty – the date of receipt may be treated as the start of the trust. This can affect how the mixed fund is characterised and, in some cases, how the rule is applied to later increases in the fund's value. Courts differ on whether a constructive trust extends to traceable proceeds of the original trust money that have appreciated.

The honest answer is that none of these arguments is a reliable substitute for a clean lowest-intermediate-balance analysis. They are supplementary tools, relevant when the straightforward analysis produces an unsatisfactory or unjust result. Deploying them requires forensic groundwork: the same complete account reconstruction that the rule itself demands.

Multi-account and multi-jurisdictional tracing: where the analysis becomes complex

Real fraud rarely involves a single mixed account. Trust money enters one account, is moved to a second, converted at a third, and eventually lands in a fourth account in a different jurisdiction – or in a crypto wallet. Each step raises its own commingling question. The lowest-intermediate-balance rule applies at each link in the chain.

At the first account, the rule determines how much of the claimant's money survived to be transferred. At the second account, the claimant can only trace what survived the first step. If the first account fell to zero before the transfer, the claimant has nothing to trace into the second – regardless of how much money the wrongdoer later put into that second account.

This sequential dependency means that gaps early in the chain are disproportionately damaging. A missing statement covering a brief period of the first account can break the chain entirely. Forensic priority should be to reconstruct the earliest account in the sequence before working forward. Working backwards from the current location of assets – wherever they now sit – is useful for identifying targets, but the legal chain must be built forwards from the source.

Cross-border movement introduces an additional complication. When money moves from one jurisdiction to another, the applicable tracing rules may change. A proprietary claim that was well-founded under the law of jurisdiction A may need to be re-characterised as a personal claim under the law of jurisdiction B. Letters of request – the mechanism by which courts in one jurisdiction seek judicial cooperation from courts in another – are a standard tool for obtaining foreign banking records, but they are slow. In urgent matters, a Norwich Pharmal order against a correspondent bank or an intermediary payment processor can sometimes reach the same information faster.

Where assets have moved on-chain, the tracing analysis is technically different but legally analogous. A blockchain address is a pool of UTXOs or token balances. Deposits and withdrawals from that address follow the same logic as credits and debits to a bank account. Blockchain-analytics tools allow a forensic analyst to reconstruct the balance history of a wallet address with a precision that often exceeds what paper banking records provide. Public blockchains are transparent: on-chain movements are traceable even when the controller's identity is not initially known.

The commingling problem on-chain arises when a mixing service or a high-volume exchange address is introduced. At that point, the token equivalent of the lowest-intermediate-balance rule becomes the operative ceiling. The claimant can assert a proprietary claim to the proportion of the pool represented by its tokens, provided the pool did not fall below that proportion at any point. Wallet clustering and attribution techniques allow the forensic analyst to assess whether the critical threshold was maintained.

For a detailed account of how tracing works when funds move across borders, see the broader Financial Forensics insight section, which covers the range of tools available at each stage.

What a commingling analysis actually produces

The output of a rigorous lowest-intermediate-balance analysis is a forensic schedule: a period-by-period reconstruction of the mixed account's balance, identifying the critical low point and the maximum proprietary claim that can be asserted at each moment in time.

That schedule serves multiple purposes. It is the evidentiary foundation for a proprietary injunction application. It is the basis on which a worldwide freezing order is justified to the court: the claimant must show, with a good arguable case, that it has a proprietary claim of sufficient value. It is also the basis on which a litigation funder or insurer will assess the claim's viability. A well-prepared commingling schedule moves a matter from "we believe the money went there" to "here is the maximum proprietary entitlement, and here is the evidence for it".

The schedule also performs a second function that is less obvious: it identifies where the proprietary claim ends. If the lowest-intermediate-balance analysis shows that the trust money was spent, the claimant's remedy is personal, not proprietary. A personal remedy – a judgment debt – is valuable but it does not survive insolvency in the same way, does not allow the claimant to assert priority over other creditors, and depends on the wrongdoer having assets against which it can be enforced. Knowing this early allows the litigation strategy to be built on realistic foundations, rather than on an assumption of proprietary entitlement that the evidence will not sustain.

A matter in Western Europe, spring 2024, involving a corporate treasury fraud, illustrated the strategic importance of the schedule. Initial analysis suggested a clean proprietary claim – the funds appeared to have entered an account that remained well above the entry threshold. Deeper reconstruction showed that the account had briefly dipped below the threshold twice during a period for which statements had not initially been provided. The proprietary claim was reduced. The litigation strategy was adjusted: additional defendants were identified through a Chabra analysis, and the personal claim against the primary wrongdoer was supported by a garnishee against a separate account that had not been mixed. The adjusted strategy was more realistic and more economical to pursue.

The steps above cover the typical analytical pattern. Your matter turns on specific facts – the sequence of accounts, the timing of withdrawals, and the records available. A confidential case review helps you understand whether a proprietary claim is realistic and what it would take to establish it. Contact info@axiomtracel.com to request one.

Common objections handled: myths about missing records and hopeless cases

Practitioners who encounter commingling analysis for the first time often raise one of three objections. Each rests on a misunderstanding worth addressing directly.

The first: "There are no records, so there is nothing to trace." This conflates the forensic problem with the legal question. Records can be obtained. A Bankers Trust order against the wrongdoer's bank, a Norwich Pharmal order against a payment intermediary, letters of request to a foreign court, or a disclosure order against a VASP in the crypto context – these are tools designed for exactly the situation where the wrongdoer has not volunteered their records. The absence of records is itself evidence, in some jurisdictions, of deliberate concealment. Forensic reconstruction from partial records, correspondent records, and inference is accepted practice. For an account of how disclosure orders are obtained against banks, see our analysis of disclosure orders against banks in England and Wales, which sets out the process in a leading recovery forum.

The second: "The money went through five accounts, so the chain is broken." A chain is broken only if it can be shown that the account fell to zero at one of the links. That is a question of evidence. If the forensic reconstruction cannot establish that the balance remained above the critical threshold at each link, the proprietary claim fails at that point – but the personal claim remains. A chain that cannot be completed all the way to a current asset is still useful: it may identify the point of dissipation, support a Chabra claim against a recipient, or locate a different asset that is reachable through a personal remedy.

The third – and the one most likely to cost a defrauded client money – is the recovery-scam myth: "A specialist we found online says they can recover 90% of the loss for a percentage fee paid in advance." That is not how legitimate asset recovery works. No analyst, no law firm, and no investigation boutique can guarantee recovery. The lowest-intermediate-balance analysis itself demonstrates why: recovery depends on whether value actually survived to a reachable location, under what legal regime, with what level of solvency in the wrongdoer. Anyone who guarantees a figure before doing that analysis has not done it. Advance-fee recovery services of that kind are, in our experience, a second fraud layered on top of the first.

Strategy summary: building a recoverable claim from a commingled fact pattern

For a claimant, an insolvency practitioner, or a referring lawyer assessing a commingled fact pattern, the strategic sequence is consistent across most matters.

First, secure the available records urgently. Freezing and disclosure applications are typically made without notice to avoid tipping off the defendant. Speed matters: dissipation can defeat recovery, and urgent applications are measured in hours to days. The longer the delay, the more likely that additional withdrawals reduce the critical balance further.

Second, commission a preliminary commingling schedule on the records available. This will show whether a proprietary or personal remedy is the primary objective and will identify the gaps that must be filled through disclosure orders.

Third, identify the forum or forums with the best combination of jurisdiction over the defendant, reach over the assets, and procedural speed. A worldwide freezing order obtained in a common-law court can, in principle, reach assets globally – but ancillary relief in the jurisdiction where assets actually sit will require local counsel and, in some cases, local proceedings.

Fourth, assess the insolvency risk. If the wrongdoer is insolvent or near insolvent, the proprietary nature of the claim is not merely a doctrinal preference – it is the difference between recovering and ranking behind unsecured creditors. The commingling schedule must be completed before proceedings are filed, not after, because the proprietary claim must be pleaded with precision.

Fifth, consider whether the tracing chain extends on-chain. If any step in the sequence involved a crypto wallet or a VASP, blockchain-analytics tools extend the reach of the analysis in a direction that paper banking records cannot. On-chain tracing does not suspend the lowest-intermediate-balance rule – but it often provides a more complete picture of the balance history than the wrongdoer's bank statements do.

Finally, do not mistake activity for progress. Sending letters of demand or filing police reports does not preserve a proprietary claim. Preservation requires legal process: a freezing injunction, a Bankers Trust order, a proprietary injunction. Informal steps may be necessary but they are not sufficient. The forensic and legal tracks must run in parallel from day one.

Frequently asked questions

Q: Can a money trail be reconstructed from incomplete records?

A: Yes – and in our experience, partial records are the norm in serious fraud matters. A Bankers Trust order compels a bank to disclose account information. A Norwich Pharmal order reaches payment intermediaries and other third parties. Letters of request seek records held in foreign jurisdictions. Where records genuinely no longer exist, forensic inference across surviving records can establish, with supporting evidence, whether critical balance thresholds were maintained. Incomplete records raise the evidentiary burden; they do not end the analysis.

Q: How do you trace funds routed through several jurisdictions?

A: The tracing chain is built forwards from the source account, one link at a time, applying the lowest-intermediate-balance rule at each step. Each jurisdiction introduces its own procedural and legal requirements – the applicable tracing doctrine, the form of disclosure order available, and the forum for enforcement. A worldwide freezing order obtained in a common-law court can, in principle, reach assets globally; recognition in the asset-holding jurisdiction typically requires local proceedings with local counsel. Correspondent-bank records, letters of request, and – where funds moved on-chain – blockchain-analytics tools allow the chain to be reconstructed even when the wrongdoer has deliberately used multiple jurisdictions to fragment it.

Q: What information do you need from me to start tracing?

A: The minimum needed to begin a preliminary assessment is: the payment references and dates for the original transfers, the name of the sending bank and the beneficiary account details (if known), any correspondence with the wrongdoer, and any statements from the accounts you control that show the outgoing payments. From that starting point, forensic analysis works forward. We can identify which disclosure instruments are likely to be available and which records must be prioritised. The earlier we receive even partial information, the more options remain open – delay narrows what is reachable.

Related analysis

• Financial Forensics – full insight section: payment-trail reconstruction, dissipation analysis, and forensic tools for tracing across banking and corporate layers.
• Asset Tracing – service overview: how Axiom Trace conducts follow-the-money investigations, from first instructions to enforcement referral.
• Disclosure orders against banks in England and Wales: the Bankers Trust and Norwich Pharmal routes in a leading recovery forum.

About Axiom Trace

Axiom Trace is an independent boutique focused on cross-border and crypto asset recovery. We trace assets that have moved across borders or on-chain and coordinate their freezing and recovery – working with defrauded principals, insolvency practitioners, and the lawyers and funders who refer them. We work lawfully and within applicable sanctions regimes, alongside local counsel where proceedings must be filed.

We regularly advise on commingling disputes where the forensic challenge – incomplete records, multi-account mixing, on-chain layering – is the reason prior advisers concluded the matter was unworkable. In our experience, a methodical reconstruction frequently opens options that an initial review closed. We reconstruct payment trails from partial records and identify where value settled – not where the wrongdoer says it went.

To discuss a matter, contact info@axiomtracel.com.

Disclaimer: This publication is for general information only and is not legal advice, nor a promise or prediction of recovery. No outcome is guaranteed. Asset recovery depends on the specific facts and on the law and procedure of each relevant jurisdiction, where local admitted counsel must act. Axiom Trace assumes no liability for actions taken or not taken based on this material. For advice on your situation, contact info@axiomtracel.com.