Economic
logic lost out to legal rules in an unsuccessful attempt by battered investors
in BlackfortFX to spread losses suffered at the hands of alleged Ponzi-fraudster
Jimmie Kevin McNicholl.
Christchurch-based
McNicholl allegedly conned investors into trusting him with their money for
speculative foreign exchange trading.
Serious Fraud Office charges are pending. The one major asset purchased in the brief life
of the business seems to have been a $1.18 million property at Coatesville, in
Auckland. No active foreign exchange
trading operation was developed. The
High Court was told McNicholl created a façade of foreign exchange trading on
behalf of clients, paying fictitious profits to some clients out of deposits
made by later clients. McNicholl was the
sole director of Arena Capital Ltd, trading as BlackfortFX.
Insolvency specialists
KordaMentha told the High Court unsecured creditors are owed $23,600 and some
920 foreign exchange investors owed $6.72 million. There is only $2.3 million to share
around. Justice Mander approved a
payment plan pooling unsecured creditors and investors into the one pool
regardless of their specific legal rights against the company with all sharing
equally in the loss.
A minority of foreign
exchange investors questioned the calculation.
Since everyone had been affected similarly, in that funds were never used
as promised, then everyone should suffer equally, the minority said. All investors should get a part-payment
calculated on the total amount paid to BlackfortFX they argued; not a payment
calculated on the net balance owing when BlackfortFX stopped trading. Some investors got back all or part of what
they were owed before the business went into liquidation.
Justice Mander ruled
insolvency law is predicated on investors’ claims being assessed as at the date
of liquidation. Precise legal criteria
govern recovery of prior payments. Prejudiced
investors would challenge any ad hoc administrative
adjustments made to payouts.
The court was told making
the proposed adjustments would see 27 investors losing a total of $135,400
which would then be redistributed across 892 investors improving their payout
on average by $152. One investor would
be $48,595 worse off; $6600 extra would go to the investor best off.
Graham
v. Arena Capital – High Court (12.05.17)
17.042