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Last Friday the Supreme Court decided that investor Hamish McIntosh could keep the $500,000 he invested with Ross Asset Management Limited, but must return $454,047 of fictitious profits to RAM’s liquidators. The majority decision upholds previous decisions made by the Court of Appeal and High Court.

What is a Ponzi scheme?

It is a fraudulent investment scam, similar to a pyramid scheme, where the scheme operator provides returns to investors from money paid to the operator by new investors. Returns can be high, but Ponzi schemes are unsustainable and, when they unravel, insolvency is inevitable, with substantial investor losses.


Mr McIntosh invested $500,000 with RAM in 2007. He was led to believe that securities had been purchased and his investment was earning an attractive rate of return. Unfortunately, RAM didn’t use Mr McIntosh's money to purchase securities. The funds were misappropriated and co-mingled with other money, which was used to cash up other investors and pay expenses. Mr McIntosh didn’t know about RAM’s fraud and, in late 2011, he cashed up his portfolio and was paid $954,047, being his principal investment plus a return of $454,047.

In late 2012, John Fisk and David Bridgman of PwC were appointed liquidators of RAM (they had previously been receivers of the company). They demanded repayment of $954,047 from Mr McIntosh, who resisted payment on the basis that he had a defence under s296(3) of the Companies Act 1993 or s349 of the Property Law Act 2007. The High Court ruled that Mr McIntosh had to repay the fictitious profits of $454,047. By a majority, the Court of Appeal agreed and both parties obtained leave to appeal to the Supreme Court (the liquidators wanting the whole $954,047 to be repaid).

Supreme Court decision

The majority of the Supreme Court found that the liquidators had made out their case for the return of the fictitious profits under the Property Law Act and the Companies Act. Most of the argument before the Court turned on whether Mr McIntosh had made out the “value defence” or “change of position defence” under either Act. Mr McIntosh argued that he had provided value for the payment he received from RAM and the majority agreed that he had provided value for the investment of $500,000 (even though RAM held the funds on trust). They did not agree that he had made out the change of position defence. Glazebrook J, in the minority, agreed that Mr McIntosh’s appeal should be dismissed. In her view, however, Mr McIntosh did not give value for either his investment or the fictitious profits (in part because RAM only held the funds on trust and had no right to use the funds), and the entire $954,047 should be repaid to the liquidators.


The Supreme Court has clarified that the Companies Act and Property Law Act can be used to claw back fictitious profits made in a Ponzi Scheme. The result means that Mr McIntosh gets to keep his initial investment, while the liquidators of RAM are entitled to the fictitious profits on the investment. The Supreme Court’s decision is generally consistent with what we understand the position in the United States to be, where there have been a number of cases involving Ponzi schemes and claw back claims.

In 2015, the Insolvency Working Group was asked to address Ponzi schemes. In its recent second report, the IWG declined to make any recommendations about how to better protect the interests of investors in Ponzi Schemes while the Supreme Court’s decision was at large. The Group suggested that, after the Supreme Court issued its decision, the Government should look at whether there is any need to make changes to:

  • aid the recovery of funds under the Property Law Act by adding a ‘Ponzi presumption’ (that means that investors are creditors and actual or constructive fraud are to be presumed where a debtor operated a Ponzi Scheme) and/or good faith defence; and
  • establish a compensation scheme.

The IWG formed the view that little, if anything, could be changed in the Companies Act voidable transactions regime to benefit investors in Ponzi schemes. In his separate judgment, William Young J noted that while the insolvent transaction provisions of the Companies Act were generally engaged by the facts of the case, they were “…awkward to apply in the present context and the legislative language does not provide clear answers to the questions whether Mr McIntosh gave value for the payments made to him and, if so, to what extent.” (Paragraph [208] of the judgment).

The Supreme Court’s decision suggests that amendments to the Property Law Act would make it easier to apply the setting aside provisions of the Act to Ponzi schemes. Submissions on the IWG’s second report close on 23 June.

To read a copy of the judgment, please click here. If you would like to know more about the Supreme Court’s decision, please contact us.



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