Caron and Seidlitz v Jahani and McInerney in their capacity as liquidators of Courtenay House Pty Ltd (in liq) & Courtenay House Capital Trading Group Pty Ltd (in liq) (No 2) [2020] NSWCA 117

Caron and Seidlitz v Jahani and McInerney in their capacity as liquidators of Courtenay House Pty Ltd (in liq) & Courtenay House Capital Trading Group Pty Ltd (in liq) (No 2) [2020] NSWCA 117

Where evidence and the account state permit, the lowest intermediate balance rule should be applied to distribute mixed funds among investors in an insolvent unregistered investment scheme, allowing those whose funds are demonstrably undissipated and traceable to recover (subject to appropriate deductions and hotchpot), rather than using a simple pari passu distribution across all claimants regardless of the movement and depletion of the fund.

Parties
First Appellant: Peter Caron; Second Appellant: Anke Seidlitz; First Respondent: Said Jahani and John McInerney in their capacity as liquidators of Courtenay House Pty Ltd (in liq) & Courtenay House Capital Trading Group Pty Ltd (in liq); Second Respondent: Courtenay House Capital Trading Group Pty Ltd (in liq); Third Respondent: Courtenay House Pty Ltd (in liq); Fourth Respondent: J.P. Melocco Pty Ltd; Fifth Respondent: LifeSmart Trading Pty Ltd; Sixth Respondent: Ralph Del Vecchio
Jurisdiction
Australia
Judgment Date
18 June 2020
Procedural Posture
Appeal / Court of Appeal From Equity – Corporations List Decision [2019] NSWSC 1113
Outcome
Appeal allowed
Legal Topics
Unregistered Managed Investment Scheme, Ponzi Scheme, Liquidation, Distribution of Mixed Funds, Parri Passu Distribution, Lowest Intermediate Balance Rule, Tracing, Hotchpot
Corporations Equity Insolvency Unregistered Managed Investment Scheme Ponzi Scheme Liquidation Distribution of Mixed Funds Parri Passu Distribution +3 more

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Parties

Peter Caron

First Appellant

Anke Seidlitz

Second Appellant

Said Jahani and John McInerney in their capacity as liquidators of Courtenay House Pty Ltd (in liq) & Courtenay House Capital Trading Group Pty Ltd (in liq)

First Respondent

Courtenay House Capital Trading Group Pty Ltd (in liq)

Second Respondent

Courtenay House Pty Ltd (in liq)

Third Respondent

J.P. Melocco Pty Ltd

Fourth Respondent

LifeSmart Trading Pty Ltd

Fifth Respondent

Ralph Del Vecchio

Sixth Respondent

Procedural Posture

Appeal / Court of Appeal From Equity – Corporations List Decision [2019] NSWSC 1113

Legal Issues

  1. 1 Whether the primary judge erred in applying the simple pari passu method of distribution of funds in a mixed Ponzi scheme bank account
  2. 2 Whether the lowest intermediate balance rule should be applied in distributing limited, commingled funds to investors able to trace their contributions
  3. 3 Whether Category E and Category F post-21 April 2017 investors are entitled to recover their investments (less costs and a pro-rata deduction for a $60,000 withdrawal) ahead of pre-21 April 2017 investors

Ratio Decidendi

Where evidence and the account state permit, the lowest intermediate balance rule should be applied to distribute mixed funds among investors in an insolvent unregistered investment scheme, allowing those whose funds are demonstrably undissipated and traceable to recover (subject to appropriate deductions and hotchpot), rather than using a simple pari passu distribution across all claimants regardless of the movement and depletion of the fund.

Court Disposition

Appeal allowed

Orders

  • The orders of the primary judge are set aside.
  • Subject to hotchpot, Liquidators are justified to determine amounts due to Post 21 April 2017 Westpac Investors as follows: the $60,000 withdrawn from Westpac 2 on 21 April 2017 is to be deducted pro-rata across all investors with claims for deposits made on or before 21 April 2017; Category E investors are entitled...