In March 2016, the New Zealand Court of Appeal in McIntosh v Fisk  NZCA 74 upheld a 2015 High Court decision that was brought by the liquidators of Ross Asset Management (‘RAM’) as a test case to claw-back certain payments made to Hamish McIntosh, an investor in RAM. These payments were made approximately 14 months prior to RAM being placed in liquidation. The liquidators considered the payments were voidable transactions under s 292 of New Zealand’s Companies Act 1993. However, what distinguishes this case from the usual voidable transaction scenarios, is that RAM was New Zealand’s largest Ponzi scheme.
RAM’s liquidators claimed that the payments to McIntosh, which totalled $954,047, were a voidable transaction under s 292. Although McIntosh presented a number of other claims in his defence, his primary defence was that he satisfied the three-limb statutory defence contained in s 296(3) of the Act. This provision was amended in 2006 and provides that a court must not order the recovery of property of a company (or its equivalent value) by a liquidator, whether under the Act, any other enactment, or in law or in equity, if the person from whom recovery is sought proves that when they received the property they acted in good faith and that a reasonable person, in their position would not have suspected, and did not have reasonable grounds for suspecting, that the company was, or would become, insolvent. In addition, the person must prove that they gave value for the property or altered their position in the reasonably held belief that the transfer was valid and would not be set aside (emphasis added).
At the High Court and the appeal to the Court of Appeal, it was accepted that Mr McIntosh satisfied the first two limbs of the defence. Accordingly, the focus was on the third limb of the provision. Both Courts decided that the value of McIntosh’s original deposit of $500,000, which he invested with RAM in 2011, was protected by the defence. However, the balance of the funds received upon withdrawal was required to be repaid to the liquidators. Both Courts concluded he had not given value or altered his position sufficiently to satisfy the third limb of the defence in relation to the balance. Our article focuses on the issue of value as it appears in the section. This term was the considered by the New Zealand Supreme Court in Allied Concrete v Meltzer  NZSC 7. Although the focus of this decision was whether the requirement to give value in s 296(3) requires proof of new value given when, or after, a payment is received, Arnold J on behalf of the majority stated at para 76 that the ‘creditor must have given some consideration that has a real and substantial value and not one which is merely nominal or trivial or colourable’.
However, the majority of the Court of Appeal in McIntosh v Fisk at para 38 found that McIntosh had only given value for the deposit as they found that the ‘deposit was not only real and substantial but, to that extent, quantifiable and equivalent’. The article argues that if an equivalence test is read into s 296(3), this will result in New Zealand courts being required to undertake time-consuming and fruitless assessments of quantum. It also argues that courts must give priority to commercial confidence and fairness to individual creditors over a remorseless application of parity-based logic wherever a payment has a preferential effect. It concludes that in order to maintain clarity in New Zealand’s company law and ensure its purpose is upheld, creditors should remain entitled to keep payments received in good faith, with no suspicion of insolvency and for which they provided real and substantial value. The case has been appealed to the Supreme Court of New Zealand, although the decision has yet to be released. It is hoped that the Supreme Court will recognise the difficulties of an equivalency test being read into the defence and instead leave it to the government to enact dedicated statutory remedies for Ponzi scheme investors.
Trish Keeper is a Senior Lecturer at the School of Accounting and Commercial Law of the Victoria University of Wellington.
Nina Opacic is an Honours student of the LLB(Hons)/BA at Victoria University of Wellington.