March 11, 2024

Can there be ‘winners’ in a Ponzi scheme? Singapore High Court examines the use of avoidance provisions in insolvency law to unwind profits paid out to early investors


Conventional wisdom says that by getting in early and getting out quickly, investors in even the most egregious fraudulent scheme can walk away with handsome profits, leaving later investors to bear the losses. In a recent case before the Singapore High Court, that conventional wisdom was put to the test.

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In 2021, news broke of a massive investment fraud perpetrated by the Envy group of companies in Singapore. Victims were allegedly cheated of some US$1.1bn, deceived by promises of a share of receivables from lucrative nickel trading deals – all of which allegedly turned out to be fictitious.

Two years later, in 2023, Liquidators of Envy Asset Management (“EAM”, one of the Envy group companies) commenced an action in the Singapore High Court, seeking orders to claw back payments made to one of the ‘winners’ in the scheme who had exited with profits prior to the scheme’s collapse.

The question of how these ‘winnings’ ought to be treated in the context of an insolvent Ponzi-scheme company had never been raised in the Singapore Court before. The Court’s decision, reported in Envy Asset Management Pte Ltd (in liquidation) and others v CH Biovest Pte Ltd [2024] SGHC 46, confirmed that the defendant’s profits from the scheme were liable to be clawed back, on the basis that they were paid out with intention to defraud creditors, and in the alternative, represented transactions at an undervalue.

Setia Law’s Jason Teo was appointed by the Court to act as Young Independent Counsel (“YIC”), to assist the Court on several novel issues raised by the application.

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The Decision

First, the Court rejected the defendant’s contention moneys paid by investors to EAM were held by EAM on a Quistclose trust and/or an institutional constructive trust for the investors. The defendant had sought to advance this proposition in order to argue that profits paid out from such moneys constituted trust property that would not form part of EAM’s assets, and therefore would not be subject to the relevant avoidance provisions in the CLPA and the IRDA. Having considered the investment contracts themselves, the Court found that there was no intention to create such a Quistclose trust, and that an institutional constructive trust did not arise since the defendant voluntarily handed over the principal sum to EAM pursuant to the investment contracts.

Secondly, the Court held that EAM paid the profits to the defendant with the intent to defraud its creditors pursuant to s 73B of the CLPA, because: (a) there was actual fraud on the part of EAM; and (b) EAM did not receive valuable consideration from the defendant for the profits paid out.

The Court found that there was actual fraud because a Ponzi scheme operator must know that the scheme will eventually collapse, and there was no legitimate purpose in the operation of the scheme other than to defraud investors.

With regard to the issue of valuable consideration, the Court found that the defendant failed to show that any valuable consideration it provided to EAM – in the form of the initial investment sum – was valuable consideration for the profits he received.

Key to this was the fact that EAM was only contractually obliged to pay profits to the defendant on the condition that there was appreciation in its Nickel investments. There was, however, no real Nickel investments to speak of, and thus no appreciation. Accordingly, EAM was never obliged to pay out the profits that it did, and those profits paid out to the defendant were thus an extracontractual payment, for which no consideration had been given.

In reaching this conclusion, the Court declined to lay down a general proposition, as advocated for by the claimants, that no valuable consideration can ever be provided in a Ponzi scheme – contrary to several foreign decisions which appear to have laid down such a general rule.

This was sufficient to dispose of the application, but the Court nonetheless also concluded that EAM’s payment of profits to the defendant was also liable to claw back as a transaction at an undervalue pursuant to s 224(3)(a) of the IRDA, though it declined to find that the defendant was unjustly enriched at the expense of EAM, because EAM had not established the unjust factor of total failure of consideration.


In granting the orders sought by EAM and its liquidators, the Court has recognized, for the first time in Singapore, that unwinding the effects of a fraudulent scheme and redistributing the ‘losses’ suffered by innocent investors can be achieved through the powerful avoidance tools available under Singapore’s insolvency regime.

The Court’s decision therefore has a notable impact on how victims and asset recovery practitioners should strategise their recovery efforts in instances of large-scale investor fraud. Asset recovery efforts in similar cases in Singapore have typically been pursued against the perpetrators of the fraud, an action which is naturally vindicative of the victims’ grievances but can often be unproductive due to the efforts of such perpetrators to render themselves judgment-proof, necessitating expenditure of significant time and cost pursuing enforcement of judgments across jurisdictions.

That said, the decision also leaves open the question of how best to deal with numerous defendants (i.e. the ‘winners’ in the scheme), as would be the case in a broad asset recovery effort in the context of a Ponzi scheme.

In this vein, the court rejected the claimants’ attempt to lay down a general proposition that there can never be consideration given for profits from a Ponzi scheme. That the claimants advocated for such a general proposition was logical –claw back claims in investor fraud cases would need to be prosecuted against numerous recipients of such profits, and a general proposition that consideration could never be given would no doubt ease the process of pursuing such claims.

However, as the YIC submitted, although it may generally be the case that no valuable consideration is given for the payment of fictitious profits in Ponzi schemes, this is an outcome derived from applying principles of contract law – not the application of a general principle, which risks bringing with it notable difficulties including dealing with cases of partial Ponzi schemes (where there is both legitimate and fraudulent activity), and where the Ponzi scheme was initially legitimate and only became fraudulent at some point subsequently.

Therefore, there remains considerable scope for further development of the law in the context of such large-scale asset recovery efforts. In particular, it is yet to be seen whether the Singapore Court will endorse the approach taken in certain foreign jurisdictions, where the insolvency process in the context of large-scale investor frauds is managed through significant judicial intervention, in order to bring before the Court all interested groups of creditors (including through representative litigants), avoiding the need for piecemeal litigation against individual recipients of fictitious profits.

Finally, beyond addressing the question of claw back of Ponzi scheme profits for the first time, the Judgment also notably delves into various issues relating to the development and scope of avoidance provisions under Singapore’s insolvency regime, which is likely to have notable implications even on ‘ordinary’ claw back cases.


Jason Teo

Associate Director