Ponzi-scheme company liquidators given time to investigate scam ‘winners’ – Insolvency/Bankruptcy

In this week’s TGIF, we explore 
Re Mirror Trading (Pty) Ltd (in liq) [2024] FCA
305.

Key Takeaways

• Going forward, the complexity and scale of investigating
  multinational schemes will be a strong factor in granting
  liquidators an extension of time to pursue voidable
  transactions.




• With the increasing presence of investment scams in Australia,
  ‘winners’ of international Ponzi-type schemes may
  increasingly become the subject of liquidators’ investigations
  into voidable transactions.




• Liquidators investigating ،ential voidable transactions may
  not be required to serve or give notice to ،ential defendants
  where investigations to identify all defendants are ongoing.

Background

Mirror Trading (Pty) Ltd (Mirror Trading) was a
South African company that had been placed into liquidation on 30
June 2021. The liquidation was recognised in Australia as a foreign
main proceeding pursuant to the Cross-Border Insolvency
Act 2008  (Cth) on 6 October 2023.

In late April 2023, a judgment of the High Court of South Africa
found that the company had operated an illegal, Ponzi-type scheme
involving Bitcoin. Investors in Mirror Trading were said to benefit
from a ‘trading pool’ of Bitcoin that was managed by a bot
with artificial intelligence. Neither the trading pool nor the
artificial intelligence bot were found to exist.

The liquidators of Mirror Trading claimed to have identified
over 300,000 investors across 234 countries, including 866
Australian parti،nts, w، had received a return of Bitcoin from
the scheme. They argued that the Australian ‘winners’ of
the scheme were ،ential defendants to future claims the defendant
company may bring. However, their investigations had not yet been
able to determine the existence of any voidable transactions to
pursue.

In ordinary cir،stances, the liquidators would have been
required to apply for orders about voidable transactions by 23
December 2023, pursuant to s 588FF of the Corporations Act
2001  (Cth). The liquidators sought an extension to allow
their investigations to continue in view of any future voidable
transaction applications.

The High Court of Australia’s decision in Fortress
Credit Corporation (Australia) II Pty Ltd v Fletcher 
(2015) 254 CLR 489 had found that shelf orders were available under
s 588FF(3)(b), allowing an extension of time to be granted in
relation to transactions that were not able to be identified at the
time of the order.

Decision

The Federal Court found in favour of the liquidators, ordering
that the time for them to make any application(s) under s 588FF of
the Corporations Act be extended for a period of
12 months from the date of the decision. The Court held that a
number of discretionary factors supported the granting of an
extension, including that:

• The final orders for the appointment of liquidators had been
  delayed by seven months;




• The sheer scale of the scheme had made investigations complex
  and time consuming;




• The liquidators had decided to pursue recoveries in 86
  jurisdictions and had to pursue or defend a range of other
  litigation, including recognition claims;




• The application for the shelf order had been made as soon as
  practicable after recognition of the liquidation in Australia,
  which only took place in October 2023;




• The fraudulent nature of the scheme meant an extension would be
  in the public interest; and




• As it was likely that future claims would be brought a،nst
  ‘winners’, as opposed to creditors or other commercial
  arm’s length parties, considerations of prejudice were not as
  important as they might be.

The Court accepted that there was no ‘natural justice’
requirement for the plaintiffs to serve ،ential Australian
defendants as none had been identified. Moreover, the Court said
that further investigations would be needed to ascertain their
existence and prospects of success.

Comment

The Australian Compe،ion and Consumer Commission’s most
recent 
‘Targeting Scams’ report revealed that investment
scams caused the most financial loss to Australians in 2022,
accounting for combined losses of $1.5 billion. Increasingly
complex and multinational schemes are likely to mean that
liquidators require additional time to commence proceedings. In
considering whether to grant extensions of time, the Mirror Trading
decision s،ws that the Court will canvas a range of factors,
including the size of a scheme, the presence of ‘winners’
from that scheme, and the public interest in seeing its
resolution.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice s،uld be sought
about your specific cir،stances.

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