In Financial Markets Authority v PTT Limited (in receivership) [2016] NZHC 692 the Financial Markets Authority (FMA) suspected that Mr Steven Robertson was operating a Ponzi scheme by receiving funds for investment which were ultimately not invested.  Accordingly, in August 2015, the FMA obtained orders under the Financial Markets Conduct Act 2013 (FMCA) preserving assets and appointing receivers over various companies owned by Mr Robertson.  The FMA also sought that the costs of the receivers be met from the assets of the respondents. 

Mr Robertson and the other respondents opposed the receivers' costs being taken from the estate, claiming that the Court had no jurisdiction to make such an order. 

Palmer J held that the Court does have jurisdiction to make such an order as long as doing so is for a purpose within the contemplation of the FMCA.  He noted that the public and regulatory function of receivers appointed under the FMCA distinguishes them from ordinary receivers.  Accordingly, such receivers ultimately have a public function to act in the interests of potentially aggrieved persons in order to fulfil the wider public functions of the FMCA.

In setting out the criteria that should be applied by a Court in considering where the costs of the receivers should fall in a particular case, Palmer J found that the Court should only make such orders if it is satisfied, after hearing from all relevant parties, that:

  • The receivership is clearly justified in the interests of the potentially aggrieved persons
  • The effect of doing so will not impact on the returns to potentially aggrieved persons of their funds disproportionately to their benefits.  

Applying these criteria, the judge considered the receivership was clearly justified but that there was not enough information to decide whether the second limb of the above test had been met.  At the time of this hearing, the known claim pool comprised approximately $2 million, while the known asset pool was only $50,000.  The receivers' costs had also increased to $172,603.10.

However, it was possible that the FMA could have further claims against additional respondents.  Accordingly, Palmer J considered that the FMA could apply to the Court again once there was greater clarity about the relationship between the total pool of claims by potentially aggrieved persons and the total available assets. 

The Court stated that if the receivership is clearly justified but the effect of the receivership is disproportionate, then the Court may face a difficult decision as to how to allocate the costs, and the FMA may need to bear the portion of the costs that are not proportionate to the benefits. 

See the Court's decision here.