Parastate Labs, Inc v Wang Li [2026] SGHC 178

The recent case of Parastate Labs, Inc v Wang Li and others [2026] SGHC 178 highlights an issue often overlooked by investors, including at times retail investors. (https://www.elitigation.sg/gd/s/2026_SGHC_178)

During the surge of cryptocurrency trading several years back, one of the issues I often took pains to highlight was the common false perception of “ownership” entertained by investors when they “buy” cryptocurrencies on a platform or using an intermediary. More often than not, what a user is entitled to is a right of redemption or a right to withdraw such assets as are recorded as being part of their portfolio, but not an actual proprietary claim over specific identifiable assets.

Parastate shows that the specific terms of the agreement entered into and the mechanisms of how assets are to be dealt with are highly relevant in determining whether an investor is treated as a beneficial owner of the assets “bought” or “stored” on a platform or with a third-party service provider.

It also highlights that the back-end operations of such third parties, such as such as whether, and why, investor assets are segregated or pooled, is relevant to determining whether an investor is treated as an “owner” of an asset that is treated as being held on trust.

The importance of the above should not be underestimated, especially with recent developments in the industry.

Just this week, Binance, the world’s largest cryptocurrency exchange, fell victim to an over US$6 billion heist perpetrated by hackers (https://www.channelnewsasia.com/business/binance-reveals-hackers-used-fake-job-interviews-malicious-code-in-us6-bn-heist-6517421). Fortunately, Binance was able to “cover” any purported losses given its sheer size, and it is likely that customers’ requests for withdrawal or redemption will continue to be met. However, any other platform falling prey to a similar attack could find itself in a situation with insufficient assets or liquidity to meet withdrawal/redemption requests.

Investors may then find themselves in a situation where even though their account assets appear to be untouched, they are unable to withdraw the cryptocurrencies they “own” and are instead only entitled to bring a monetary claim in respect of the value of such cryptocurrency. This will mean that, in relation to an insolvent company, they will be treated as unsecured creditors ranking pari passu with all other unsecured creditors (such as landlords and vendors), and are likely to only recover cents on the dollar on their investments.

Investors should therefore consider the following before entering any third-party investment arrangements:

(a)   Carrying out due diligence before entering an investment arrangement to understand the standard terms of use and the back-end operations of such third party;

(b)   Holding liquid assets meant for day-to-day trading separately from assets meant for long-term holding, to maintain control and dominion over the latter and enjoy continued proprietary rights in respect of the same.

Cryptocurrency disputes often raise a myriad of legal issues that require nuanced application of established contract, trust and equitable principles, which may vary from case to case. It is important for legal and technical knowledge to be properly deployed in conjunction with one another to obtain expedient and effective solutions.

Below is a summary of the facts and findings on trust made by the Court in Parastate.

I.           Creation of express trust

A. Facts

In March 2022, Parastate signed a Cryptocurrency Management Agreement (CMA) with BAAMPL, a Singapore subsidiary of the Babel Group, and transferred 5m USDT to invest in the Babel Alpha USDT Fund. This was a closed-end fund that began trading on 18 March 2022 and took no new subscribers after that date.

Recital 2 of the CMA stated that BAAMPL would carry out “cryptocurrency management activities” for Parastate “on behalf of and for the benefit of” Parastate, but the CMA did not require the assets to be kept separate. Parastate’s USDT first went into the Babel Group’s holding wallets, where it was mixed with other customers’ assets. It was then moved to the “Alpha Sub-Account”, which Moonalpha held on the Deribit exchange and which pooled the assets of all three Babel Quant Alpha sub-funds. There, the assets were traded freely, at the Babel Group’s discretion, to exploit price differences.

The proceedings began because the Babel Group failed to return Parastate’s 5m USDT. Parastate commenced proceedings on the basis that the 5m USDT was held on trust.

B. General principles for creation of trust

1.          Requirements (at [74]): (a) certainty of intention; (b) certainty of subject matter; and (c) certainty of objects

2.          Certainty of intention (at [75]–[77]): Requires proof that the alleged settlor had intended to create a trust and subject property to trust obligations.

a.      Intention may be inferred from the settlor’s words or conduct, the surrounding circumstances and the interpretation of any agreements that might have been entered into.

b.      Intention is to be discerned objectively from the words used (similar to contractual interpretation).

c.       Intention is assessed at the time of the creation of the purported trust; the words and conduct of the settlor after such time will often be less probative.

d.      A requirement or obligation on the part of the alleged trustee to segregate the alleged trust property from his own property (or those of third parties) is a useful indication of an intention to create a trust. The fact of actual segregation is also a useful indicator.

e.      The commercial context of the transaction is also relevant. However, courts are reluctant to introduce the intricacies and doctrines of trust into ordinary commercial affairs. The court will not infer a trust simply because a court thinks it is appropriate to protect or create an interest. The “unthinking extension” of trusts to the commercial context can upset the usual proportionate distribution of assets in the event of insolvency.

3.          Certainty of subject matter (at [78]–[87]): Requires: (a) the assets which are to be held on trust to be identifiable and clearly defined; and (b) the kind of interest that the beneficiaries are to take in them to be sufficiently certain.

a.      Cryptocurrencies are a species of intangible property (specifically a chose in action) capable of being held on trust.

b.      Where a defined portion of an unsegregated bulk of property is alleged to have been held on trust, the trust will fail unless it is certain precisely which assets forming part of that bulk constitute the subject matter of the trust. Proprietary rights cannot be acquired in fungibles forming an unidentified part of a bulk until they have been separated by some suitable act of appropriation.

4.          Certainty of objects (at [88]): Requires that the objects of the trust be definable by reference to a conceptually certain criterion. In the case of a fixed trust, it suffices if there is a conceptually certain criterion by which the trustee can, in theory, draw up a complete list of the beneficiaries intended to take an interest under the trust.

II.          Holdings on the facts

A.         No express trust on the Alpha USDT Fund in favour of Parastate

5.          The terms of Parastate’s investment into the Alpha USDT Fund were governed by the “four corners” of the Cryptocurrency Management Agreement (“CMA”) and the Management Program (“MP”) entered into between Parastate and BAAMPL (at [90]). Parastate’s case was that BAAMPL held all the assets in the Alpha Sub-Account on an express trust for all of the subscribers of the Alpha USDT Fund (at [91]).

Certainty of objects

6.          However, the Alpha Sub-Account held not only the cryptocurrencies invested in the Alpha USDT Fund, but also those invested in other funds (the Quant Alpha Fund and the Quant Alpha ETH Fund). The allegation that there were 16 investors who had invested US$50 million into the Alpha USDT Fund (in respect of whom the trust was sought) was also not supported by any concrete evidence. Instead, there was only an allegation in its affidavit that there were about 16 subscribers who had invested an estimated total of US$50 million in the “Alpha Funds”, which would have included the Quant Alpha Fund and the Quant Alpha ETH Fund as well (at [92]–[93]).

7.          Nonetheless, the Court was satisfied that the objects of the alleged trust were certain as they could be defined by reference to a conceptually clear criterion i.e. the subscribers of the Alpha USDT Fund as at the Start Date in the MP. This was because it was a closed-end fund and there was no proof of the entrance of new subscribers. BAAMPL therefore would have been able to draw up a complete list of subscribers to the Alpha USDT Fund as at the Start Date (at [94]).

Certainty of subject matter

8.          Parastate had failed to prove that there had been a total investment of US$50 million into the Alpha USDT Fund. Even if it were to be assumed that there had in fact been a total of US$50 million invested into the Alpha USDT Fund, that said nothing about the number and type of cryptocurrencies which were held in the Alpha Sub-Account as at the Start Date, which was fatal to Parastate’s claim that the subject matter of the alleged trust was certain. There was thus no sufficiently defined fungible mass which the subscribers of the Alpha USDT Fund could be said to beneficially co-own (at [95]).

9.          This may have been cured by the existence of an internal ledger setting out the precise quantities of the cryptocurrencies alleged to have been held on trust as well as the relative entitlement of each accountholder (at [97]). However, the evidence only showed that the 1^st Defendant confirmed that a subscriber would be entitled to a proportionate return of Alpha USDT Fund, calculated by reference to the quantum of the size of the investment. This did not show the entitlement of a subscriber to the cryptocurrencies, but simply affirmed that a subscriber was entitled to withdraw or redeem their investments (at [98]).

Certainty of intention

10.       There was also no certainty of intention for the trust in favour of the subscribers. This was because the CMA was entered into between Parastate and BAAMPL, not the individual subscribers, and there was no evidence that the subscribers investments had been governed by similar terms with BAAMPL or the Babel Group (at [99]).

11.       Further, the CMA lacked language alluding to a trust structure, instead only stating that BAAMPL was to undertake “cryptocurrency management activities” in respect of the Management Asset on behalf of and for the benefit of Parastate. This was also only stated in the recital of the agreement, which is generally not regarded as an operative term of a contract (at [101]). There was also no requirement in the CMA that the cryptocurrencies be segregated into sub-accounts. Even if they were subsequently so segregated, this did not change the fact that there had been initial commingling with the cryptocurrencies of other investors, and the evidence showed that the segregation was an administrative protocol adopted by the Babel Group, as opposed to a treatment of the assets as trust property (at [102]–[104]). It was also relevant that the Alpha Sub-Account cryptocurrencies were traded freely and without encumbrance as part of the investment strategy for the fund. This would have been inconsistent with an express trust arrangement (at [105]–[106]). The Court also observed that the cryptocurrencies were likely also held and traded by entities other than BAAMPL as part of the Babel Group’s arrangements for the Management Asset (at [108]).

The Devil in Details - when a mistake leads to a dispute

Tuffi (Pte) Ltd v Techkon Pte Ltd [2026] SGHC(A) 25 ("Tuffi")

In Tuffi, we are faced with an unfortunate but not unforeseeable situation of a Calculation Mistake being made in an agreement. As a result, the “Final Sum” stated to be payable under the agreement ended up being disputed even though both parties had signed off on the “Final Sum” as stated therein. 

Unfortunately, this is more common than one may realise, especially for example, in case involving more complex calculations or the tallying of multiple components. For example, in a a construction dispute involving many line items, rates and quantities, a single missed entry or decimal point in one row could have a significant knock in effect on subsequent calculations, and may go unnoticed by parties.

Curing an error: Interpretation or rectification?

Interestingly, in Tuffi, the Appellate Division took the view that contractual interpretation should not be force-fitted as a mechanism for resolving what is in fact a mistake, especially where such interpretation is inconsistent with the plain and ordinary words used. In this case, the agreement was clear on its face on the sum payable, and also provided how this sum was arrived at.

The following observations of the Court are pertinent:

At [65] and [71]: When interpreting a contract, the meaning ascribed to the term must be one which the expressions used by the parties can reasonably bear. While the court is entitled to depart from the plain and ordinary meaning of the expression used, there is a limit to what the court can legitimately do, and where the court seeks to reject the actual words used, the alternative of rectification may be the more appropriate remedy. The equitable remedy of rectification refers to the reconstruction of a document where there is a mismatch between the parties’ common intention and the instrument which purports to record it.

The legal elements for contractual rectification on account of a common mistake

To succeed in obtaining the remedy of rectification, a party would need to show (at [73]):

1. Parties had a common continuing intention in respect of a particular matter in the instrument (whether or not this amount to an agreement)

2. There was an outward expression of accord on the same

3. The intention continued at the time of the execution of the instrument

4. The instrument did not reflect the common intention by mistake

This is to be distinguished from the contractual defence of common mistake that seeks to void a contract. Because of the distinct outcomes that result from either pleading a defence of common mistake or pleading a case for rectification, there are different thresholds that the law imposes for each. For example, for a contractual defence of common mistake to succeed, it must be shown that that mistake rendered the subject matter of the contract fundamentally different from the subject matter which the parties contracted on as constituting the basis of their contract. This is not a requirement to meet in obtaining the remedy of rectification.

In Tuffi, the Court ultimately found that the "Final Sum" as set out and broken down in the agreeement was not in line with parties’ common intention. Specifically, the “Final Sum” double-counted certain expenses (which could not have been either party’s intention at the time of signing). It was accordingly decided that the remedy of rectification was appropriate.

Implied terms

The Court in Tuffi also took the view that even if rectification was not ordered, an implied would exist to the effect that the Final Sum would be adjusted if there are any calculation errors, since it appeared that the possibility of calculation errors did not appear to have been contemplated at the time, and it would have been obvious to a reasonable third party observer that adjustments should be made in the event of errors. Further, if the shoe was on the other foot, i.e. Techkon had paid more than was intended, it would be obvious that an adjustment should be made to reflect parties' intentions.

Conclusion

The case provides several important learning points:

First, not all mistakes are equal. Being able to identify provisions which carry higher risk assists in the contract drafting and review process.

Second, there are limits to what the Court will accept “parties must have meant” to re-interpret a contract. In a dispute therefore, the material facts establishing a mistake must be pleaded to obtain the remedy of rectification. The cleanest way for this to be done is to expressly plead facts matching the legal elements for rectification (set out above), and to expressly seek rectification as a remedy at the outset.

Third, it may be said that interpretation, rectification and implication are three distinct but related approaches that the Court ultimately relies on to give effect to parties actual intentions in entering into an agreement. Where a remedy of rectification is being considered, it would also be useful to stress test a potential argument for an implied term. This can be useful where it is uncertain whether all four elements for rectification can be established on the evidence.

Contract drafting can be both interesting and maddening, but when done well, it can mark a time and cost-saving feature in a business life-cycle of extreme value.

Stuart Peter

Advocate & Solicitor

Case at: https://www.elitigation.sg/gd/s/2026_SGHCA_25

The fallout of a Ponzi scheme: How much is enough?

CH Biovest Pte Ltd v Envy Asset Management Pte Ltd (in liquidation) and others [2025] SGCA 3; [2025] 1 SLR 141 (“Biovest”); Lau Lee Sheng and others v Envy Asset Management Pte Ltd (in liquidation) and others and another appeal [2026] SGCA 28; [2026] 1 SLR 964 (“Lau Lee Sheng”).

Written by Stuart Peter, singaporelawupdates.com

In a recent Business Times article,[i] the headline read: “Three ex-employees of Envy group join Ng Yu Zhi in bankruptcy”.

Having acted for one of the ex-employees in the High Court, I do feel it is necessary to contextualize the case.

The short version of a very long story is that the involved Envy entities had, under the leadership of Ng Yu Zhi, purported to be involved in a lucrative trading of nickel which was able to get investors fast returns. Envy purported to have an arrangement with an Australian mining company which allowed it to purchase nickel at a discounted rate. Investors could invest in the Envy business and share in the gains made by Envy on the onward sale of nickel.

However, investigations later disclosed that the Australian company had no relationship with Envy and did not even know it was being held out as a distributor of nickel for Envy. The Envy group went into liquidation, and the liquidators determined that there had been no nickel trading in the manner alleged, and that Envy was essentially running a Ponzi scheme.

These ex-employees who now “join Ng Yu Zhi” in bankruptcy were not however involved in defrauding investors at all. Instead, they themselves were introduced to investing with the Envy companies and had also invested substantially into the Envy companies. Having been convinced of the success of the business, they were also incentivised to refer investors to Envy (including family and friends), and received commissions for such investments placed (as is not uncommon in the industry).

When the scheme collapsed, the liquidators then sought to claw back gains made by investors out of “fictitious profits” and commissions paid to the ex-employees that arose out of such fictitious profits.

Diametrically opposed interests

In a Ponzi scheme, the Courts and the liquidators are faced with diametrically opposed interests of the “winners” and “losers” of the scheme.

Because of the nature of a Ponzi scheme, “early adopters” who come in early and get out “in time” can end up making substantial gains on their “investments”. These early investors are however innocent of any fraud. As above, many of the ex-employees of Envy were also early investors (and continued to invest in Envy until it was placed in judicial management).

On the other hand, the unfortunate investors coming in at the tail end before the collapse of the scheme often end up with the entirety of their investments locked up in the insolvent company, with low prospects of recovery.

Liquidators and the Courts therefore stand between the “innocent winners” and the investors who sit in a net loss position (the “net losers”). On the side of the innocent winners, if they are forced to disgorge the entirety of their gains, it is almost certain that they would be placed in a worse position than they would have been had they not invested at all. On the side of the net losers, their interests lie in being able to recover their investment monies.

The liquidators’ ultimate goal is of course to achieve optimal realisation of assets for the insolvent company, which can then be applied towards better distribution of assets amongst unpaid creditors. This may involve the prosecution of claims against parties who owe money to the insolvent company or who are otherwise liable to the company. Such claims often involve interested party transactions, breaches of directors’ duties and/or fraudulent trading, and are pursued against the wrongdoers themselves (or the parties assisting them).

The Envy cases however were among the first cases in which the insolvency regime in Singapore was tested against the collapse of a Ponzi scheme, and constituted the first time where the Courts had to take a position on whether the “innocent winners” in a Ponzi scheme ought to be liable to disgorge the entirety of their gains back to the insolvent company.

On one view, this could be seen as a “fair equaliser” amongst investors. On the other hand, considering that the scheme had been ongoing for approximately five years (starting in 2015-2016), and that the judgments providing a final view on the same were only issued in 2025 and 2026, there may be many “innocent winners” who are eventually asked to disgorge the entirety of their “winnings” years after they were received.

The Court is of course, as always, faced with the challenge of seeing how these opposing interests can be balanced in a manner that does justice amongst the involved parties.

The innocent investors

The case of the innocent investors came up for decision in Biovest. Here, the liquidators brought claims against an investor for sums paid to it in excess of its principal investments (“Overwithdrawn Sums”), on the grounds that they were transactions at an undervalue under Section 224 of the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”) or fraudulent conveyances of property under the then in-force Section 73B of the Conveyancing and Law of Property Act (“CLPA”).

The Court of Appeal essentially found that because there were no trades from which “profits” could arise, investors who had received more than a return of their “principal investment” would have received such excess sums at an undervalue since no consideration had been given for the receipt of profits which did not in fact exist. As a matter of contract, there was no contractual entitlement for an investor to receive the Overwithdrawn Sums since their agreements with Envy were premised on payouts being derived from actual profits. The payments of the Overwithdrawn Sums were thus treated as “gifts” under Section 224 of the IRDA.

The Court of Appeal further found that it was not open to CH Biovest, as an innocent investor, to argue that it had provided consideration for the receipt of the Overwithdrawn Sums, since these were essentially non-contractual or extra-contractual payments which bore no connection to Envy’s contractual obligations under its investment agreements.

While the logic of this seems straightforward, the treatment of the payment of the Overwithdrawn Sums as “extra-contractual” does have consequences for the finality of investor contracts. The only reason the payments were “not part of the bargain” is because Envy chose not to carry out its own obligation to apply investor monies as agreed, and took active steps to conceal this.

A simple analogy is illustrative. If I place an order for 10 shares of Tesla through a broker, and the broker confirms the order (without actually placing it), and I subsequently cash out when the share price goes up, this could arguably still be treated as an undervalue transaction (since no Tesla shares were purchased by the broker at all). Essentially, the insolvent broker (upon being caught) may then, via its liquidators, bring claims against every single “innocent investor” (including me) who had been “overpaid”.

The question here is not necessarily whether the transactions rightly qualify as undervalue transactions as defined in present legislation, but whether different considerations ought to come into play given the size, scale and complexity of a Ponzi scheme (which in this case involved over S$1 billion), especially when considering the issues of practicality, justice, prejudice and finality of investments in seeking to overhaul a Ponzi scheme to “equalise” investors, most of whom are innocent of any wrongful conduct.

The innocent employees

Subsequently, in Lau Lee Sheng, the liquidators also brought claims against ex-employees for the commissions they had received on investments referred to the Envy Companies. The logic of the claim was similar and likewise the Court of Appeal decided that, since there were no profits to speak of, there was no consideration given for the receipt of commissions based on such fictitious profits, and such commissions were liable to be clawed back. Again, the bargain struck was to be paid commissions based on actual profits, which in the present case did not exist.

Without rehashing the matters canvassed above, there are a few points that do not sit that well as a matter of policy and approach in the event future situations like the Envy case arise.

Resposed trust in an employer

In the case against the ex-employees, it was uncontroversial that none of the defendants knew about the fraudulent acts of Ng Yu Zhi and/or the existence of the Ponzi scheme. For all intents and purposes, the defendants assumed the nickel trading was happening, in reliance on their employer’s own representations, and acted accordingly, even by investing their own monies into the companies and referring friends and family to do the same.

The decision here throws employees into a bit of a quandary, in that they could be thrown for a loop in the event that their employer turns out to be a nefarious fraudster with the veneer of success. Payments received which are “too good to be true” might now need to be mistrusted. This can become complicated, for example, in the case of employees cashing out on stock options of an overvalued company with inflated and fictitious financial reports.

Of course, every case will be decided on its own facts, but the existence of the employer-employee relationship, and an employee’s entitlement to trust in the representations of his employer as to the running of the company, its performance etc., do not appear to have assumed material significance in the decision made in Lau Lee Sheng.

The "Underwithdrawn Sums"

As above, many of the ex-employees of Envy were also investors in the company. In fact, one of the appellants still had over S$2 million invested with the Envy companies when the scheme collapsed (the “Underwithdrawn Sums”), but was adjudged liable for the full sum of S$6.1 million of commissions declared and/or paid to her (less excess income tax she had already paid).

In other words, the Envy companies were still holding S$2 million of the appellant’s principal investment monies when the claim was brought against her.

The Court however declined to either exercise its discretion to account for this (whether in whole or in part) or to allow for such sums to be set off against the claim for commissions. The reasoning of the Court of Appeal can be summarized as follows:

First, the Court found there was no reason for it to exercise its discretion to prevent a clawback of an amount equal to the underwithdrawn sum because this would essentially allow the appellant to avoid joining the ranks of unsecured creditors and circumvent the pari passu rule.

Second, there was no “mutuality of parties and debts” to allow for an insolvency set-off under Section 219 of the IRDA. This was because

(a)   the causes of action under Sections 224 and 438 of the IRDA vested in the liquidators and not the company;

(b)   the moneys clawed back represent sums that are due to the estate of Envy that are refundable because of transactions that contravened the statute, not because of business activities that created a debtor/creditor relationship in favour of the company;

(c)   the true beneficiaries of the moneys clawed back are the creditors and the appellant’s obligation to repay the Envy companies was owed to the creditors;

(d) the cause of action under Section 438 of the IRDA had not yet accrued at the time of the commencement of the winding up, and could therefore not form part of the “mutual dealings” on which a set-off could apply.

Lack of mutuality vs Policy

Respectfully however, this appears to be a somewhat tautologous means of arriving at the conclusion that statutory avoidance claims are not liable to an insolvency set-off due to a “lack of mutuality”, when it may be more a matter of policy.

(a)   First, even if the causes of action vest in the liquidator, they are exercised on behalf of the company with whom the appellant was dealing as an employee and investor. The subject of the clawback claim is the commissions she received from the company, and the subject of the set-off sought is the monies she had invested in the companies. By virtue of Section 140 of the IRDA, the liquidator takes into custody all property and things in action to which the company is or appears to be entitled. This has never prevented a party who had mutual dealings with a company from asserting it is entitled to an insolvency set-off in the past (in respect of ordinary claims e.g. for contractual debts, loans etc.);

(b)   Second, even if the funds were “refundable” due to the transaction “contravening statute”, that does not mean that the transaction could not have formed part of a mutual dealing. An example can be made of two trading partners who have a running account between themselves. If an outgoing payment is treated as an unfair preference liable for clawback, that does not negate the mutuality of their relationship. Instead, it is a matter of policy as to whether an insolvency set-off ought to apply regardless of such mutuality where a statutory avoidance claim is involved;

(c)   Third, the ultimate beneficiaries of any monies collected and realised by the liquidators are the creditors in any liquidation scenario. Even a straightforward claim for a breach of contract would be for the benefit of the creditors. That, however, again does not remove the mutuality of any dealings between parties to such a contract.

(d)   Fourth, while the statutory cause of action to reverse a transaction may only arise after the winding-up order is made, that does not prevent the transaction in question from forming part of a mutual dealing with the company.

(e) Fifth, the remedy of an insolvency set-off is itself an exception to the pari passu principle. It is unclear if the Court’s view that such a set-off was not available due to lack of mutuality informed the position on whether an exercise of discretion was warranted for the accounting of the Underwithdrawn Sums, or vice versa.

The clawback of sums not received

Finally, the last portion of the decision that is perplexing is that one of the appellants was also asked to repay the Envy Companies a sum equal to the amount of commissions that had been declared as due to her but never paid out to her at all. Instead, the appellant had chosen to reinvest these sums (amounting to approximately S$909,000) into Envy’s “nickel trading”. The Court therefore took the view that this sum was still liable to be clawed back under Section 73B of the CLPA, with the conveyance being “[EAM’s] purported discharge of a chose in action belonging to the [appellant] by channelling, at the [appellant’s] request, the payment … into an investment in the Purported Nickel Trading”.

This was so even though counsel for Envy had themselves acknowledged that there was nothing taken out of the company and no loss occasioned to the Envy companies by such conferral of commissions. The Court, however, took the view that this was not strictly accurate. The reinvestment was not a refund of what had been wrongly paid out, but an investment of the appellant’s own moneys, which changed her status to that of an investor with a corresponding claim as a creditor in the insolvency of EAM.

Essentially, the appellant chose not to receive commissions, which were then reinvested, and was asked to repay the Envy Companies for such reinvested sum, even though the Court had already established that there was no investment to speak of, and that the defendants were not entitled to any commissions. By the Court’s own reasoning, the appellant should be entitled to file a proof of debt including the benefit of her “reinvested commissions”, but it is unclear if this would be accepted in the adjudication of such proof of debt, given the finding that there was no entitlement to commissions in the first place. Even if she was allowed to prove such a debt in the liquidation of the Envy companies, she would likely only receive a fraction of the “investment sum” that she was now ordered to pay into Envy as reflective of the purported benefit of an “investment” into the non-existent nickel trade that she had received.

In other words, the orders made compel the appellant to pay out-of-pocket a sum of approximately S$909,000 that she never received in cash, but was instead fictitiously allocated to a non-existent investment. Again, while the decision can be understood on a straightforward reading of insolvency legislation, it sits uncomfortably against the notion that an innocent investor can be asked to disgorge cash to a company that defrauded her by declaring a false investment benefit in its own books.

Conclusion

Cases like Envy reveal the many tensions, inconsistencies, challenges and countervailing interests competing in an insolvent liquidation. At the end of the day however, the question I was left with upon hearing of the bankruptcy of the three ex-employees was whether there exists an ideal equalisation scenario in the context of a collapsed Ponzi scheme, and if so, how that may be achieved (whether within our existing frameworks or within something more customised for similar factual circumstances). Applied en masse, the collection of Overwithdrawn Sums could result in multiple bankruptcies of innocent investors, which may not ultimately yield significant payouts for retail investors.

While innocent investors may persuade the court to exercise its discretion not to order a clawback, this requires exceptional circumstances, typically prejudice so serious that it outweighs the policy of reconstituting the estate. This may be difficult to prove given the lapse of time and the difficulty of showing causation. For example, while innocent investors may still have assets against which enforcement can be brought, they may have substantially depleted the benefit of their “winnings” by the time orders are made against them. It is not unforeseeable that a person who obtains a sudden increase in wealth would adjust their lifestyle accordingly, but it is also difficult to prove that “but for” the receipt of the payments, such expenses would not have been incurred. For instance, if a car was purchased, or a luxury holiday taken, or even spending more on expensive childcare, education etc. it may be difficult to show that these adjustments were made in reliance on the increased income from Envy such that orders for full clawbacks should not be made.

It will be interesting to see how the decisions arising from the Envy cases will impact the restructuring and insolvency space moving forward, especially where similar circumstances present themselves.

[i] Accessible at: https://www.singaporelawwatch.sg/Headlines/three-ex-employees-of-envy-group-join-ng-yu-zhi-in-bankruptcy.