Ponzi investigations and their cost

Free liquidator investigations into failed Ponzi schemes are raised as an idea in a New Zealand government discussion paper on proposals to deal with the inevitable insolvency of a Ponzi scheme.[1]

In recommending the liquidation process under the skilled hand of a liquidator, the paper says that if “there are insufficient assets to pay a liquidator, the liquidator will not be paid”, this being “the current position for liquidators appointed to companies”.

In such cases, free government lawyers and forensic accountants, free access to regulator services and information, and no court filing and hearing fees is my proposed concomitant.


The background is that a NZ government appointed Insolvency Working Group (IWG) had earlier outlined potential changes to better protect the interests of investors and to speed up recovery processes in the case of Ponzi schemes, based largely on US law.

However, the IWG made no firm recommendations because a NZ Supreme Court decision (McIntosh v Fisk [2017] NZSC 78) was pending before that report was completed.

That decision has now been given, the Supreme Court finding that an investor McIntosh who, before the collapse of the Ponzi scheme, was paid out his initial investment sum plus “fictitious profits”, could keep the former but not the latter.

The NZ government’s preliminary view in the paper is that this outcome is inconsistent with public policy. It cites a minority judgment by Glazebrook J as to why:

“The operation of a Ponzi scheme cannot… in any way be described as an ordinary commercial transaction. The only purpose of the scheme is to defraud investors. I accept that Mr McIntosh was an innocent investor who had no knowledge of the fraud. However, this was the same for all investors. In policy terms an accident of timing as to when funds are withdrawn should not favour one defrauded investor over another”.

Ponzi scheme regulation

Common with Australia, NZ has no targeted regime providing for the recovery of investor funds lost in a Ponzi scheme. While, as the IWG had said, a purpose of insolvency is not to prevent or address investment fraud, and its outcomes are not necessarily designed for Ponzi type losses, liquidation is in fact often used as a means to recover and distribute any remaining assets of such schemes to investors. The paper ultimately suggests that a liquidation process is the best option.

While Ponzi schemes have many different legal forms which then determine how assets are recovered, a liquidator can use the voidable transactions regime, and the laws against fraudulent property transfers. The paper does note that ‘the powers of a liquidator are more limited where a Ponzi scheme is a trust’. Other remedies, including of investors, include a statutory manager, claims for breach of trust, tracing, restitution and like remedies.

The paper canvasses what recovery options should be available, including what needs to be proved to allow recovery.

The liquidator’s fees

The paper then gets to the point of how the liquidator should be paid.  It may be that in many collapsed schemes, funds are available, as a first priority, to pay the liquidator what can be considerable fees to investigate and wind up a Ponzi scheme. As the paper explains

“As is the case for the liquidation of companies, we consider that the liquidator’s reasonable costs and expenses should be treated as costs of the liquidation and met from the assets of the Ponzi scheme.   [but] they can only be paid if there are assets available. To the extent that there are insufficient assets to pay a liquidator, the liquidator will not be paid.   This is the current position for liquidators appointed to companies”.


What some have termed an ‘expectation gap’ in insolvency is evident in this paragraph.  Could we assume for example that if the liquidator were to be fully unpaid, the NZ Official Assignee should take the role? Or if to be partly unpaid, given the funds remaining, that a liquidator could investigate only to the limited extent he or she is paid?

Or, if there were some legal obligation or expectation of a full and thorough investigation by an unfunded liquidator, could we have it that all legal and forensic services be provided free by government lawyers and advisers, and that the courts likewise share the costs, by foregoing filing and hearing fees, and the regulators their search and other fees?

The public interest

The failure of a Ponzi might be seen by some as a matter between the investors and the nefarious operator. In a recent Australian case,[2] the Judge set aside a dubious deed of company arrangement (DOCA), offering creditors fractions of cents in the dollar, which would have avoided the need for an investigation of the scheme.

As the Judge said:

“There are in my view serious commercial morality issues that require investigation in the public interest and in the interests of the creditors despite their position. … these considerations far outweigh what I have found to be the negligible returns under the DOCA”.

The failure of the scheme was

“not simply a private matter between [its operator] and the creditors.

“76 There is an obvious public interest in ensuring that funds advanced to promoters for investment purposes are protected and safe. … The loss is over $16m. What went wrong and why are important issues affecting the public, public policy, regulation, commercial morality, and indeed the Investors despite their position. These issues cannot simply be ignored or swept under the carpet”.

In colourful perhaps non-judicial terms, the Judge went on to express his feelings about the conduct of the operator, whose

“footprints are all over every aspect of the case yet he declined to give evidence. How convenient!”.


If governments want liquidator to do their investigations, they must expect to have someone pay.  ASIC relies much on its “front-line investigators of insolvent companies”.  And the buzz term of proportionality of returns for effort made has to be seen in another context.

In a New Zealand case[3] involving the winding up of a major fraudulent scheme, involving losses of NZ$ 43 million, the remuneration of the liquidator – over NZ$330,000 – consumed all funds remaining in the companies.

The Judge accepted that the liquidators “left no stone unturned to pursue possible remedies for the creditors” but the complexity of the corporate dealings and the large fraud involved, resulting in three directors going to jail, “defeated their efforts”.

In approving their remuneration for work properly and reasonably done, the Judge said:

“That nothing came of those efforts is not in any way a matter for which the liquidators are to be criticized. Further, there was a strong public policy requirement that there be a proper investigation of the affairs of the company and the enquiries and investigations which the liquidators undertook were [commensurate] with that need”.

Another one, or more

Then there is this investigation of the Macro Group: ASIC v AGKM Green Pty Ltd [2017] FCA 846 in which the Judge said that the evidence “points strongly toward the conclusion that the defendants, under the control of [the operator], form part of a group of companies which have raised in excess of $100 million from private investors by way of the operation of an apparent Ponzi scheme”.

Further reading and debate

Keay’s Insolvency, 10th edition, 2018 (out soon)

AIIP Conference 28-29 June 2018 – the future of the industry. This is a likely topic.


[1] A new regime for unravelling Ponzi schemes – May 2018.

[2] Eco Heat (Vic) Pty Ltd v the Syndicate Forty Four Pty Ltd (subject to DOCA) [2018] VSC 156

[3]  Five Star Debenture Nominee Limited (in liq) v Five Star Finance Limited (in rec’p) [2015] NZHC 142

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