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.