Australia: The case of the Brexit Ponzi scheme - No distribution of remaining funds to investors struck by common misfortune

This week's TGIF article considers the case of In the matter of Courtenay House Capital Trading Group Pty Limited (in liq) v Courtenay House Pty Limited (in liq) [2018] NSWSC 404, in which investors in a Ponzi scheme unsuccessfully sought to have the funds remaining in the scheme's bank accounts pooled for distribution amongst them.


Courtenay House purported to operate an investment scheme that accepted funds from investors for the purpose of engaging in foreign exchange trading. In fact, they undertook very little foreign exchange trading, and were instead a Ponzi scheme whereby funds deposited by more recent investors were used to repay earlier investors. The scheme inevitably failed and liquidators were appointed.

The scheme offered a number of 'special products' associated with significant world events.

For the 'US Election Special' and the 'Inauguration Day Special', investors paid $20m and $27m respectively into the scheme's bank accounts. Those funds were ultimately paid in returns to investors, rolled over to other accounts, or paid into other bank accounts, leaving a nil balance in the accounts at the date of the appointment of liquidators.

For the 'Brexit Special', investors paid some $29m into one of the scheme's bank accounts (Brexit funds). During the investment window for the Brexit Special, ASIC obtained freezing orders over the scheme's bank accounts.

The liquidators of the scheme were able to trace the entirety of the Brexit funds to the Brexit investors.


The liquidators brought proceedings to determine how the funds remaining in the scheme's accounts should be distributed amongst the duped investors.

If the Brexit funds were treated as exclusively the beneficial property of the Brexit investors, those investors would receive a 100% return on investment, while the non-Brexit investors would receive only a 13% return. However if the funds were 'pooled' for distribution, all investors would receive a return of 26%.

Unsurprisingly, the Brexit investors joined the proceedings to contend that the funds traceable to them were held on trust for them alone, and were not available for distribution to the other investors.

The non-Brexit investors argued that there was no trust established in relation to the Brexit funds. Alternatively, they argued that if the Brexit funds were held on trust, then the non-Brexit funds were also held on trust, and that the remaining funds in the account should be 'pooled' to avoid one trust benefiting at the expense of another. Finally, the non-Brexit investors argued that any funds the Brexit investors received prior to the liquidation should be set off against any distribution they would now get from the Brexit funds.


The Court held that the Brexit funds were held on trust for the Brexit investors alone, and that there was no basis for pooling or a set-off in favour of the non-Brexit investors.

Was there a trust?

The Court held that the funds were held on trust on the basis of an express trust, a Quistclose trust or a Black v Freeman trust.

The express trust was founded on the basis that investment documents described the funds being 'held in trust'. The Court found that absent this express reference to 'in trust', there may have been insufficient certainty that a trust had been created, but held that 'the presence of those unambiguous and explicit words is decisive.'

The fact that multiple different Brexit investors were directed to deposit funds into the same bank account was consistent with an intention to create a trust – indeed it is common for investment schemes to do so for the purpose of trading.

The Court also found that:

  • a Quistclose trust arose because the Brexit funds had been transferred for the express purpose of trading, and the freezing orders made that purpose impossible; and
  • a Black v Freedman trust was established because the funds 'had been obtained by fraud,' in that there was no prospect that the Brexit investors would have invested the funds had they known that they were not going to be used for foreign trading, but instead would be used to pay out earlier investors.

Could the funds be pooled or set-off?

The Court accepted that the funds the non-Brexit investors deposited were also intended to be held on trust for them, for the same reasons as the Brexit funds. The Court also accepted that s 601EE of the Corporations Act 2001 (Cth) allows the Court to make an order for the pooling of funds.

However, the Court held that pooling was only appropriate where the funds were 'irreversibly deficient and mixed' and was warranted 'only when the funds have become so intertwined that each client's entitlement to one account may reasonably be regarded as identical to its entitlement to the other.'

As the liquidators were able to trace every contribution to the Brexit funds, the funds were not mixed with any other money and they were not deficient to repay the Brexit investors, there was no basis for pooling the funds. Section 601EE did not authorise the Court to ignore clear property interests 'on account of some notion of common misfortune.'

Finally, the Court rejected the non-Brexit parties' submission, in support of a set-off, that it would be unfair for Brexit investors to receive back the whole of their investment in the Brexit funds, in addition to amounts they may have already received from the scheme. The Court found that outside of a mixed funds situation, a beneficiary's entitlement to recover his property from one fund is not affected by what he has received from another fund.

In summary, the Brexiteers won the day, while those involved in the US Election and the Inauguration lost on all fronts.


Aside from the obvious warning against investing in Ponzi schemes, the case highlights the restraint that courts will use when exercising powers under the Corporations Act to distribute surplus funds in a liquidation or winding up.

Although the Corporations Act s 601EE gives the Court the power to "make any orders it considers appropriate for the winding up" of an investment scheme, the Court in this case confirmed that that power should not be seen by investors as a general power to override proprietary interests in remaining funds, simply on the basis of fairness to those who will otherwise miss out on a distribution.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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