Supreme Court update: can a liquidator claw back Ponzi scheme payments?

Friday 26 May 2017

Authors: David Friar and Nick Moffatt

​​​​​​​If an "investor" receives a payment from a Ponzi scheme, can they later be forced to give up that payment? The Supreme Court recently decided that question in McIntosh v Fisk​*.

The decision arises from the collapse of a group of companies, including Ross Asset Management Ltd (RAM), that were run by David Ross as a Ponzi scheme. Prior to the collapse of the group, an "investor" in RAM, Mr McIntosh, cashed out his investment and received a total of $954,047 from RAM. RAM said that this comprised of his initial investment of $500,000 and profits on that investment of $454,047. In fact these “profits” were entirely fictitious.

After the scheme collapsed, the liquidators of RAM sought to recover the amounts that Mr McIntosh received as a voidable transaction under the Companies Act 1993 and as a disposition prejudicing creditors under the Property Law Act 2007. 

A complicating factor was that Mr McIntosh's investment, like those of all RAM investors, was meant to be held on trust for him. However, it was instead pooled with other investments and misappropriated.

High Court and Court of Appeal

In both the High Court and Court of Appeal, the liquidators were successful in seeking recovery of the fictitious profits, but not the initial investment. Both Courts found that Mr McIntosh had a defence for the claim to the investment as he had given value to RAM for that amount. The value was both the legal title to the investment that RAM acquired when it misappropriated those funds and the discharge of Mr McIntosh's claim for those funds when the repayment was made. 

By contrast, no value had been given for the fictitious profits, and so the defence could not apply to the claim for those profits. Nor could Mr McIntosh establish that he altered his position in reliance on the validity of the payment for the fictitious profits. 

Supreme Court

The majority of the Supreme Court dismissed Mr McIntosh's appeal as well as the liquidator's cross appeal. However, in a partially dissenting judgment, Justice Glazebrook would have allowed the liquidator's cross appeal. 

The primary focus before the Supreme Court was whether Mr McIntosh could establish that he had given "value" for the challenged payment. If so, he is entitled to keep the payment.

​Majority decision​

The majority found that the $500,000 investment never became part of the pool of assets available to the unsecured creditors of RAM. Instead, RAM held the funds on trust for the victims of its misappropriation. To that extent, they disagreed with the Courts below. However, they considered that value still needed to be recognised on the unique facts of this case, as the $500,000 investment increased the pool of funds available to investors whose funds had been misappropriated. Those creditors were, in reality, the only creditors of RAM of any substance. As a result, Mr McIntosh had given value and could retain $500,000 of the payment.

In contrast, the majority agreed with the Court of Appeal that no real and substantial value had been given by Mr McIntosh for the "profits" of $454,047, given that these profits were fictitious. The majority also agreed with the Court of Appeal that the evidence did not show Mr McIntosh had altered his position in reliance on the payment. As a result, the liquidator could claw back $454,047 of the payment.


In her partial dissent, Justice Glazebrook considered that no value had been given by Mr McIntosh for the payment of the $500,000 investment. As RAM only held those funds on trust, it had no value in those funds. Further, the funds were used to perpetuate a fraud which was not of real and substantial value to RAM. Her Honour would have ordered Mr McIntosh to repay the entire $954,047 that he received.


The decision is very timely. The Ministry of Business, Innovation and Employment is currently inviting public submissions on a report by the Insolvency Working Group that, in part, considers the efficiency and fairness of Ponzi scheme liquidations. It will be interesting to see whether any legislative reform follows the majority's approach or prefers that of Justice Glazebrook.

If you would like to discuss the implications of this case and what it means for your business, please contact one of our specialists, or your usual Bell Gully adviser.

*Bell Gully acted for the liquidators.


This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

For more information
  • David Friar

    Partner Auckland
  • Tim Fitzgerald

    Partner Auckland
  • Nick Moffatt

    Senior Associate Auckland
Related areas of expertise
  • Litigation and dispute resolution
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