November 30, 2017
Involuntary Filing for Commencement of Civil Rehabilitation Proceedings regarding Mt. Gox Co., Ltd.
- Involuntary Filing for Commencement of Civil Rehabilitation Proceedings
Please be informed that with regard to MTGOX Co., Ltd. (“Mt. Gox”), which is in the process of bankruptcy proceedings, we, as representatives of some of the creditors, filed an involuntary petition for commencement of civil rehabilitation proceedings at the Tokyo District Court on November 24, 2017. In response to our petition, the Tokyo District Court made an examination order and appointed an examiner on the same date.
The examiner will now start examining whether civil rehabilitation proceedings should be commenced, and based on this examination, the Tokyo District Court will decide whether to commence civil rehabilitation proceedings.
- Reasons for the Filing
We would like to explain the reason why we have filed an involuntary petition for commencement of civil rehabilitation proceedings regarding Mt. Gox, which is in the process of bankruptcy proceedings.
Within the last year, the market price of bitcoin has dramatically increased. Many creditors might have expected to enjoy the benefit of this increase in value; however, they were very shocked to hear the explanation of the bankruptcy trustee at the 9th creditors’ meeting held on September 27, 2017.
Responding to a creditor’s inquiry, the bankruptcy trustee stated that “the amount of the bankruptcy claim for the return of deposited bitcoin would be estimated at the time of the commencement of bankruptcy proceedings.” When the bankruptcy proceedings commenced three years ago (April 24, 2014), the market price of bitcoin was 483 US dollars, which was approximately one twentieth (1/20) of the current price. According to this explanation of the bankruptcy trustee, for example, a creditor who deposited one bitcoin with Mt. Gox would be treated as a bankruptcy creditor who had a claim for 483 US dollars against Mt. Gox. The distribution of 483 US dollars would be payment in full for his or her bankruptcy claim, and the creditor would not be allowed to claim any further payment. In other words, the maximum amount to be distributed from the bankruptcy estate to a bitcoin holder who deposited one bitcoin in Mt. Gox would be 483 US dollars even if the current market price of one bitcoin is 10,000 US dollars.
More shocking to the creditors was that the bankruptcy trustee then stated that, “the remaining assets after the final distribution would be distributed to the shareholders of MT. GOX.”
Let’s calculate how much will be distributed to the shareholders in such case. The total amount of liabilities owed by Mt. Gox seems to be approximately 460 million US dollars on the assumption that 1 bitcoin is estimated at 483 US dollars. On the other hand, the total amount of assets owned by Mt. Gox seems to have risen to approximately 2.3 billion US dollars on the assumption that 1 bitcoin is valued currently at around 10,000 US dollars and 1 bitcoin-cash at 1,500 US dollars. The net assets, the difference between the total amount of assets and liabilities, is approximately 1.84 billion US dollars. Based on the trustee’s explanation, this 1.84 billion US dollars would consequently go to the shareholders of Mt. Gox.
Who are the shareholders of Mt. Gox?
Eighty-eight percent (88%) of Mt. Gox shares is owned by TIBANNE Co., Ltd., 100% of whose shares is owned by Mr. Mark Karpeles. In other words, the substantial main shareholder of Mt. Gox is Mr. Karpeles, who is responsible for the failure of Mt. Gox as the representative director. Mr. Karpeles could, therefore, receive most of the distribution of 1.84 billion US dollars.
Are you willing to accept this consequence?
Such distribution to Mr. Karpeles, who should take management responsibility for Mt. Gox’s collapse, would be to the detriment of bitcoin creditors and, we believe, totally unfair and unjust.
However, according to our research on bankruptcy law and practice in Japan, if the matter goes ahead in bankruptcy proceedings, the above consequence will be almost unavoidable. After considering various types of possible actions to avoid such an unfair result, we have come to the conclusion that the best way forward would be to file an involuntary petition for commencement of civil rehabilitation proceedings in order to convert the existing bankruptcy proceedings.
Why is conversion to civil rehabilitation proceedings the best way forward?
If the existing bankruptcy proceedings are converted to civil rehabilitation proceedings, the distribution limitation of 483 US dollars per bitcoin will be lifted. As a result, it will be possible to avoid the unfair and unjust result of distributing a huge sum of money to Mr. Karpeles.
Additionally, in bankruptcy proceedings, distributions are made only in cash, while in civil rehabilitation proceedings, it is permissible to stipulate in a rehabilitation plan that the distribution to bitcoin creditors be made in bitcoin. Furthermore, distribution in bitcoin-cash can also be stipulated in the plan. It will be much easier for creditors to receive a distribution in bitcoin and bitcoin-cash, and the distribution costs will be lower than if it was converted to cash.
In the first place, the claims that bitcoin creditors have are the right to claim for the return of the bitcoin that they deposited, and distribution by bitcoin and bitcoin-cash is the most appropriate settlement, given the nature of the transaction between the bitcoin exchange and its customers.
The foregoing is the reason why we filed a petition for commencement of civil rehabilitation proceedings.
- Future Schedule
As we explained above, based on the result of the examination by the examiner, the Tokyo District Court will decide whether to commence civil rehabilitation proceedings, and our petition is under examination right now.
We will keep you informed of the progress of this filing of an involuntary petition for commencement of civil rehabilitation proceedings through this website.
- Request to Creditors
We will make our best efforts to ensure civil rehabilitation proceedings are commenced. In order to accomplish this goal, we may ask you for your cooperation, although we are still considering, and have not yet determined, how or if we will ask you to cooperate in the future. If the majority of creditors support civil rehabilitation proceedings, it will improve the chances of the petition being successful.
We understand that some creditors may wish to ask us questions or make requests; however, we are not able to respond to everyone, as we do not have sufficient human resources. In addition, we are not in a position to provide legal advice to creditors who are not our clients; in such case, please consult with your own lawyers for legal advice. Please also note that this website does not constitute legal advice.
We will try to provide you with information and updates on this matter on this website.
Nishimura & Asahi
Shin Fukuoka, Attorney-at-law
Yuri Sugano, Attorney-at-law