February 28, the deadline of the examiner’s report, is approaching.

Since we filed for the commencement of civil rehabilitation proceedings on November 24, 2017, we proactively continues our activities to realize the commencement of civil rehabilitation proceedings and have had meetings with the Tokyo District Court, the bankruptcy trustee and the examiner appointed by the Tokyo District Court. We have been conveying our views and conducting research on some theoretical points and reporting the results to them in order to persuade them to commence civil rehabilitation proceedings.

We would like to explain the following theoretical issues that need to be settled in order to commence civil rehabilitation proceedings. Even though there is no precedent for these issues, we believe that we will be able to overcome them and that they will not be obstacles to commencing civil rehabilitation proceedings.

(1)        Conditions for the commencement of civil rehabilitation proceedings

Article 25 of the Civil Rehabilitation Act (the “Act”) provides the conditions for the commencement of civil rehabilitation proceedings. More concretely, Article 25 of the Act provides four cases where it is not appropriate to commence civil rehabilitation proceedings (items (i) to (iv)), and it provides that civil rehabilitation proceedings should be commenced unless any one of the items is applicable.

In this Mt. Gox case, the following two items could be issues that will need to be discussed:

(ii) Where bankruptcy proceedings or special liquidation proceedings are pending before the court, and enforcing either proceedings conforms to the common interests of creditors.

(iii) Where it is obvious that a proposed rehabilitation plan is unlikely to be prepared, approved or confirmed.

If our filing for the commencement of civil rehabilitation proceedings falls under either item (ii) or (iii), the court will dismiss our petition for the commencement of civil rehabilitation proceedings, and, consequently, civil rehabilitation proceedings will not be commenced. However, we believe that this Mt. Gox case does not fall under either item (ii) or (iii) and it is an appropriate case for civil rehabilitation proceedings as explained below.

(2)        Article 25 (ii) of the Civil Rehabilitation Act

Article 25(iii) of the Act provides that civil rehabilitation proceedings should not be commenced in the case where enforcing bankruptcy proceedings pending before the court conforms to the common interests of the creditors. Now, we need to discuss whether the pending bankruptcy proceedings “conform to the common interests of creditors” rather than civil rehabilitation proceedings.

Whether or not enforcement of certain proceedings “conform to the common interests of creditors” depends on whether or not they conform to the interests of the creditors as a whole, instead of individual creditors or a certain group of creditors, as the Act stipulates the “common interests.”

In the bankruptcy proceedings of Mt. Gox, the amount of the bankruptcy claims for the return of deposited bitcoin will be estimated at the time of the commencement of the bankruptcy proceedings, and the remaining assets after the final distribution to the bankruptcy creditors will be distributed to the shareholders of Mt. Gox. The amount of distribution to the shareholders could be, if it were provisionally calculated on the assumption that the bankruptcy trustee will sell the bitcoins at the market price just before our filing for the commencement of civil rehabilitation proceedings (916,762 yen/1 bitcoin on November 24, 2017), approximately 160 billion yen.  On the contrary, in the case where civil rehabilitation proceedings are commenced, this 160 billion yen will be distributed to the creditors of Mt. Gox, and the creditors as a whole will enjoy the financial benefit of 160 billion yen.  Judging from this outcome, it is obvious that the enforcement of civil rehabilitation proceedings conforms to the common interests of creditors and this Mt. Gox case does not fall under Article 25(ii) of the Act.

(3)        Article 25 (iii) of the Civil Rehabilitation Act

Article 25 (iii) of the Act provides that civil rehabilitation proceedings shall not be commenced in the case where it is “obvious” that a proposed rehabilitation plan is unlikely to be prepared or approved, or a rehabilitation plan is unlikely to be confirmed. With regard to the meaning of “obvious” in Article 25 (iii), it is commonly understood that it means a very exceptional and limited case where there is no room for doubt that a rehabilitation plan will not be prepared, approved or confirmed.

In this Mt. Gox case, the exact details of the civil rehabilitation plan will need to be determined in the future; however, at present, there are no circumstances that indicate that a proposed rehabilitation plan is unlikely to be prepared by the newly appointed trustee or approved in a creditors’ meeting, or a rehabilitation plan is unlikely to be confirmed by the court. Therefore, this Mt. Gox case does not fall under Article 25 (iii) of the Act, and civil rehabilitation proceedings should be commenced.

We have obtained a written opinion that supports our understanding above from a prominent academic in the field of insolvency law, and have already submitted it to the parties concerned.

We sincerely hope that the activities that we have been conducting are successful and that civil rehabilitation proceedings will be commenced in this case.

End