Revised Basic Policy for Preparing a Rehabilitation Plan (as of August 1, 2018)

The revised basic policy for the rehabilitation plan that we are considering as of August 1, 2018 is as stated below. We received various comments on the previous version of the basic policy from a large number of creditors (including Mt Gox Legal which has been administrated by Mr. Andy Pag) and we have made revisions based on these comments.  The revisions are written in red.

The rehabilitation plan outline we have prepared is merely a proposal as of this point in time. We would like to hear your opinions, as creditors, and make revisions to prepare a rehabilitation plan which reflects creditor opinions to the fullest extent possible.

Your opinions can be submitted by commenting on this article, sending e-mails to the relevant e-mail address, or sending letters. You can also use the comment box on the website.  We look forward to hearing your opinions.  Please provide your name and filing number so that we are able to identify you as a creditor.

 

[Basic Policy for the Rehabilitation Plan]

  1. The rehabilitation plan should be simple and the implementation thereof should have a high degree of certainty.

Although we requested of the court that the proceedings be progressed in accordance with the standard schedule of civil rehabilitation proceedings, the commencement order has set the deadline for submitting a civil rehabilitation plan on February 14, 2019, which is several months behind the standard schedule.

In order to make the first payment as soon as possible, the rehabilitation plan should be simple. If the rehabilitation plan is complicated, interest adjustment among the interested parties will be necessary, and delay in the approval of the rehabilitation plan will be a concern.  Also, a complicated rehabilitation plan would be difficult to understand, and unfriendly to many creditors.  We are of the opinion that it is important to make the rehabilitation plan as simple as possible, obtain approval early, and make payments to creditors as soon as possible.

In addition, in order to ensure payment to creditors, we are of the opinion that the rehabilitation plan should contain a plan for implementation which is both highly certain and realistic, considering rehabilitation proceedings practices in Japan.

 

  1. No distribution will be made to shareholders.

Mt. Gox is not capable of returning all BTC deposited by creditors. Accordingly, we consider that all assets of Mt. Gox should be distributed to creditors and not to shareholders.

 

  1. Claims for return of bitcoins (BTC) will be repaid in BTC and BCH in general.

In general, we consider it appropriate to make payments to creditors who had been depositing BTC (BTC creditors) with Mt. Gox, in BTC and BCH instead of cash.

This is because making payments to BTC creditors in BTC and BCH is the most simple and efficient way, minimizing transaction costs such as bank fees (this is the very advantage of BTC).  Also, if payment is to be made in cash, it will be necessary to exchange a large amount of BTC and BCH for fiat currency, which may result in the decline of the price of BTC, etc.  Further, as the price of BTC and BCH fluctuates rapidly, it is difficult to determine when to sell BTC and BCH.

We think it esirable that the BTC and BCH be sent to exchanges in which many creditors have accounts or can open accounts easily.

In addition, Mt. Gox holds a lot of cash through the sales of BTC and BCH and the remaining cash amount after the repayment to the monetary creditors should be paid to BTC creditors in cash without exchange to BTC.  In this case, we think it desirable that the cash be sent to the accounts of the exchanges, as chosen by the creditors.

Moreover, with regard to altcoins (cryptocurrency except for BTC and BCH), the number of exchanges which deal with altcoin is limited. It is unrealistic to repay BTC creditors in altcoin and therefore altcoin should be exchanged to cash and paid to creditors . However, there are no exchanges which deal with all types of altcoins, there is a possibility that the sale of the altcoins by the trustee would cause a sudden fall in the price of altcoins and security problems may arise if the trustee moves the altcoins.  Therefore, the trustee should proceed with the sale of altcoins with careful consideration of these matters.

 

4.         The full payment to the monetary creditors will be made.

Our plan will ensure the monetary creditors receive full payment of the amount which they are to be paid in the bankruptcy proceedings. Specifically, they will receive full repayment to the degree which has been approved in the bankruptcy proceedings. The amount which may be paid to BTC creditors from the estate of Mt. Gox available for payment decreases by implementing this policy. However, we will maintain this policy because, in the Examiner’s report, the Examiner considers that the civil rehabilitation of Mt. Gox shall commence, assuming that the following measures are taken before the decision to commence the rehabilitation proceedings (in other words, the discontinuation of the bankruptcy proceedings), that ensure the benefits of the monetary creditors in the bankruptcy proceedings of Mt. Gox.

We think it desirable that the cash be sent to the accounts of the exchanges, as chosen by the creditors.

 

  1. First payment to creditors will be made promptly after the approval and confirmation of the rehabilitation plan (according to the schedule written in the commencement order, this will be May or June of 2019).

Creditors have been waiting for payment to be made for as long as 4 years since Mt. Gox was bankrupted. Needless to say, payment to creditors should be made as soon as possible.

We are of the opinion that most of the assets, including approximately 166,000 BTC and 168,000 of BCH and other derivatives currently held by Mt. Gox, should be paid to creditors at the time of the first payment.

 

  1. If there are any residual assets, or new assets are found, additional payment will be made. Additional investigation for lost BTC will be implemented.

At the time of the first payment, the existence of some claims may still be disputed; therefore, it is expected that certain assets would have to be reserved at Mt. Gox until the amount of those disputed claims is fixed. In this case, we consider that those assets so reserved should be paid to creditors as additional payment.

Conversely, we think that payment should not be reserved until all of the assets/debts are fixed. Early payment should be realized by paying most of the assets that Mt. Gox has at hand to creditors as the first payment, as soon as possible, and then paying those assets/debts that are yet to be fixed, as additional payment.

With regard to additional payment, we think that a scheme should also be considered to realize additional payment promptly, under which additional payment should be made by fixing the amounts of the non-fixed assets/debts by transferring them to third parties, instead of waiting for all such amounts to be fixed.

Additionally, the investigation and recovery of lost BTC is a concern for a lot of creditors and the additional investigation should be carried out at the expense of Mt. Gox for the sake of uncovering the truth and increasing the estate and therefore increasing repayment to creditors.

 

  1. No sponsor will be selected in principle except where it is apparent that such a selection would be advantageous to creditors.

There may be an opinion that we should find a company to support Mt. Gox financially and commercially (“sponsor”). However, Mt. Gox has already suspended its business, and does not require a sponsor to supplement its creditworthiness or to continue its operations.  It is not necessarily a requirement under the rehabilitation law of Japan to appoint a sponsor, although it is common, and we are of the opinion that a rehabilitation plan can be approved by the courts and creditors without a sponsor in this case.  In addition, a certain period of time would be required to find a sponsor, and a proxy fight may occur if there is more than one sponsor candidate.  Such a situation may become an obstacle to the achievement of the purpose we consider most important, namely, early payment to creditors.  We do not intend to completely reject the option of finding a sponsor; however, we are of the opinion that a sponsor should not be selected except where it is apparent that such a selection would be advantageous to creditors and would not be an obstacle to early payment.

 

  1. The introduction of systems which allow creditors to obtain their trading records, etc. and other measures will be taken by Mt. Gox.

For creditors, the accessibility to their trading record is indispensable for the approval or disapproval of civil rehabilitation plan. We are going to ask the trustee to take measures such as the introduction of systems which allow us to obtain the trading records.

Basic Policy for Preparing a Rehabilitation Plan (as of June 29, 2018)

We are currently considering the basic policy for the rehabilitation plan that  is as stated below.  The rehabilitation plan outline we have prepared is merely a proposal as of this point in time.  We would like to hear your opinions, as creditors, and revise this basic policy to prepare a rehabilitation plan which reflects creditor opinions to the fullest extent.

Your opinions are accepted by making comments on this article, sending e-mails to “mtgoxforcreditors at-mark gmail.com” (please change “at-mark” to @ when you send email), )  or sending letters.  We look forward to hearing your opinions.  Please provide your name and filing number so that we can identify you as a creditor.  You can also use the comment box on the website at the bottom of this page.

 

[Basic Policy for the Rehabilitation Plan]

  1. The rehabilitation plan should be simple and the implementation thereof should have high certainty.
  2. No distribution will be made to shareholders.
  3. Distribution of assets to creditors will be made in kind, meaning for creditor bitcoin (BTC) claims, payment will be made in BTC and its derivatives (including but not limited BCH).
  4. First payment to creditors will be made promptly after the approval and confirmation of the rehabilitation plan (according to the standard schedule, approximately 5 months after the commencement of rehabilitation proceedings).

  5.  The full payment to the monetary creditors will be made.

  1. If there are any residual assets, or new assets are found, additional payment will be made.
  2. No sponsor will be selected in principle, except where it is apparent that such selection is advantageous to creditors.

 

[Concept of the Basic Policy]

  1. The rehabilitation plan should be simple and the implementation thereof should have high certainty.

In order to make the first payment as soon as possible, the rehabilitation plan should be simple.  If the rehabilitation plan is complicated, interest adjustment among interested parties will be necessary, and delay in the approval of the rehabilitation plan will be a concern.  Also, a complicated rehabilitation plan is difficult to understand, and is not friendly to many creditors.  We are of the opinion that it is important to make the rehabilitation plan as simple as possible, approve it at an early timing, and make payment to creditors as soon as possible.

In addition, in order to ensure payment to creditors, we are of the opinion that the rehabilitation plan should have content of implementation which is highly certain and which is realistic, considering rehabilitation proceedings practices in Japan.

 

  1. No distribution will be made to shareholders.

Mt.Gox is not capable of returning all BTC deposited by creditors. Accordingly, we consider that all assets of Mt.Gox should be distributed to creditors and not to shareholders.

 

  1. Payment for bitcoins (BTC) will be made in BTC and its derivatives (BCH, etc.).

We consider it appropriate to make payment to creditors who had been depositing BTC (BTC creditors) with Mt.Gox, in BTC and its derivatives (BCH, etc.), instead of cash.

This is because making payment to BTC creditors in BTC, etc. is the most simple and efficient way and transaction costs such as bank fees can be minimized (this is the very advantage of BTC). Also, if payment is to be made in cash, it will be necessary to exchange a large amount of BTC, etc. for fiat currency, which may result in decline of the price of BTC, etc.  Further, as the price of BTC, etc. fluctuates rapidly, it is difficult to determine when to sell BTC, etc.

 

  1. First payment to creditors will be made promptly after the approval and confirmation of the rehabilitation plan.

Creditors have been waiting for payment to be made for as long as 4 years since Mt.Gox was bankrupted. Needless to say, payment to creditors should be made as soon as possible.

We are of the opinion that most of the assets, including approximately 166,000 BTC and 168,000 of BCH and other derivatives, if any, currently held by Mt.Gox, should be paid to creditors at the time of the first payment.

 

     5.The full payment to the monetary creditors will be made.

In the Examiner’s report, the Examiner considers that the civil rehabilitation of MT.GOX shall commence, assuming that the following measures are taken before the decision to commence the rehabilitation proceedings (in other words, the discontinuation of the bankruptcy proceedings), that ensure the benefits of the bankruptcy creditors (especially those having monetary claims corresponding to bankruptcy claims) who filed proofs of claims in the bankruptcy proceedings of MT.GOX.

To convert from the bankruptcy proceedings to the civil rehabilitation proceedings, we believe that it is the best for us to allow the full payment to the monetary creditors in the civil rehabilitation proceedings.  The total amounts of the monetary claims are much smaller than the amounts of BTC claims, so the full payment to the monetary creditors does not have significant impact on the distribution to BTC creditors.  Therefore, the full payment to the monetary creditors can be implemented in the plan.

 

  1. If there are any residual assets, or new assets are found, additional payment will be made.

At the time of the first payment, existence of some claims may still be disputed; therefore, it is expected that certain assets would have to be reserved at Mt.Gox until the amount of those disputed claims is fixed. In such case, we consider that those assets so reserved should be paid to creditors as additional payment.

Conversely, we think that payment should not be reserved until all of the assets/debts are fixed. Early payment should be realized by paying most of the assets that Mt.Gox has at hand to creditors as the first payment, as soon as possible, and then paying those assets/debts that are yet to be fixed, as additional payment.

Also, with regard to additional payment, we think that a scheme should be considered to realize additional payment at an early timing, under which additional payment should be made by fixing the amounts of the non-fixed assets/debts by transferring them to third parties, instead of waiting for all of such amounts to be fixed.

 

  1. No sponsor will be selected in principle except where it is apparent that such selection is advantageous to creditors.

There may be an opinion that we should find a company that supports financially and commercially Mt.Gox (“sponsor”). However, Mt.Gox has already suspended its business, and it is not in a situation requiring a sponsor to supplement its creditworthiness or to continue its operations.  It is not necessarily a requirement under the rehabilitation law in Japan to appoint a sponsor, although it is common, and we are of the opinion that a rehabilitation plan can be approved by the courts and creditors without a sponsor in this case.  In addition, a certain period of time would be required to find a sponsor, and a proxy fight may occur if there is more than one sponsor candidate.  Such a situation may become an obstacle to the achievement of our purpose which we consider the most important, namely, early payment to creditors.  We do not intend to completely deny finding a sponsor; however, we are of the opinion that a sponsor should not be selected except where it is apparent that such selection is advantageous to creditors and will not be an obstacle to early payment.

A Rehabilitation Plan

  1. What is a Rehabilitation Plan?

A rehabilitation plan stipulates the amount and manner of payment to be made rehabilitation creditors, as well as the provisions and the like to amend all or part of creditors’ rights. The plan  will be effective if it is approved with the consent of a majority of creditors and finalized following the relevant court’s approval and confirmation.  To approve a rehabilitation plan, (i) 1/2 or more of the total amount represented by voting rights (requirement for the number of voting rights); and (ii) a majority of voting right holders who attended the creditors’ meeting or who voted in writing (requirement for the number of voting right holders), must be fulfilled.

Accordingly, when, how, and the amount creditors will be paid will be determined depending on the content of the rehabilitation plan, and in order to realize the content of the rehabilitation plan, creditors are required to consent to the plan.

  1. Purpose of Preparing a Rehabilitation Plan

In rehabilitation proceedings, a rehabilitation plan that reflects creditors’ opinions should be prepared and implemented. In the present case, however, there are at least 25,000 or more creditors, each of whom may have different opinions; it is therefore not realistic to completely meet the requests of all creditors; thus, the rehabilitation plan must be of the content that meets the greatest common interests of creditors.  That being said, we believe that creditors’ opinions with regard to basic matters are consistent.

As the rehabilitation plan will be primarily prepared by the bankruptcy trustee, we first intend to propose to the bankruptcy trustee a plan that is considered to be desirable for creditors. In order to certainly and promptly realize the rehabilitation plan, it must also be prepared taking into consideration laws and practices concerning rehabilitation proceedings in Japan.

Also, the bankruptcy trustee might prepare a rehabilitation plan the content of which is not acceptable for creditors. In such a case, creditors can submit a rehabilitation plan prepared on their own.  Whether the plan prepared by the bankruptcy trustee, or that prepared by creditors, will be adopted, will be determined by a majority vote of creditors at the creditors’ meeting, after the court’s examination.

The rehabilitation plan will ultimately be determined by a majority voting at the creditors’ meeting, and the right to determine it is left to creditors. We are of the stance to have the rehabilitation plan, which is to be submitted to the creditors’ meeting, reflect creditors’ opinions to the fullest extent, so that their interests will be protected.  Accordingly, creditors will not be bound by the outline of the rehabilitation plan proposed in the “Basic Policy for the Rehabilitation Plan” which will be released by us on this website; the ultimate decision is left to creditors, to be made by a voting at the creditors’ meeting.

Considering practices of rehabilitation proceedings in Japan, we will strive to submit to the creditors’ meeting a rehabilitation plan which incorporates creditor opinions to the fullest extent, and as a part of our activities, we intend to negotiate with the bankruptcy trustee.

The expected schedule of the CR proceedings

The expected schedule going forward for the Civil Rehabilitation Proceedings is as follows:
(1) Meeting for reporting the status of property and submission deadline for a report under Article 125 of the Civil Rehabilitation Act:
September 26, 2018

(2) Deadline for Filing proof of rehabilitation claims:
October 22, 2018

(3) Submission deadline for inventory of assets and balance sheets:
October 27, 2018

(4) Submission deadline for statement of approval or disapproval:
January 24, 2019

(5) Period to examine Proofs of rehabilitation claims:
From January 31, 2019, to February 7, 2019

(6) Submission deadline for proposed rehabilitation plan:
February 14, 2019

Commencement of Civil Rehabilitation Proceedings of Mt.Gox

Today, on June 22, 2018, the Tokyo District Court ordered commencement of civil rehabilitation proceedings regarding Mt. Gox.   Accordingly, enormous assets, which were to be distributed to Mt. Gox’s shareholders under the bankruptcy proceedings, will be returned to creditors of Mt.Gox in civil rehabilitation proceedings.  This is the creditors’ victory.  Please see “https://www.mtgox.com/ ” for the trustee’s website.

However, this victory has not been realized yet.  The victory will come to creditors when Mt. Gox makes payment to creditors and  creditors actually receive such payment.

To that end, a rehabilitation plan to certainly and promptly realize creditors’ rights should be prepared, approved at the creditors’ meeting, and approved by the court.

A rehabilitation plan, which provides creditors rights in the proceedings,  will be primarily prepared by the trustee; therefore, creditors’ opinions will not always be reflected to the rehabilitation plan prepared by the trustee.

We would like to reflect creditors’ opinions to the rehabilitation plan by proposing our opinions or plan to the trustee.  Under Jananese civil rehabilitation act, a creditor is entitled to submit his or her plan if  the court permits.

Therefore, we are now working to prepare for the separate article entitled, “Outline of Our Rehabilitation Plan.”   We would like to hear creditors’ opinions on the outline.  Creditors will send us e-mails to “mtgoxforcreditors at-mark gmail.com” (please change “at-mark” to @ when you send email), or letters.

 

Submission of a Motion to the Court (2)

We submitted a motion to the Tokyo District Court again on March 28, 2018, urging the court to promptly issue a decision to commence rehabilitation proceedings and convert the bankruptcy proceedings to rehabilitation proceedings.

We have submitted a motion to the court on March 28, 2018 (for details please refer to the “Submission of a Motion to the Court” posted on March 28, 2018 ), but the court have not yet issued a decision to commence rehabilitation proceedings. Therefore, based on the contents of the Examiner’s report, we sent letters to BTC creditors, whom we could reach, confirmed the intention to convert to rehabilitation proceedings, and we reported to the court the results using the motion.

Around 200 creditors (around BTC 105,000) have sent letters so far, which we believe proves that many creditors support our activities.

We are grateful for BTC creditors who sent letters.

Thank you for your continued support.

Nishimura & Asahi

Shin Fukuoka

Yuri Sugano

Submission of a Motion to the Court

We submitted a motion to the Tokyo District Court on March 28, 2018, urging the court to promptly issue a decision to commence rehabilitation proceedings and convert the bankruptcy proceedings to rehabilitation proceedings.

Even though about a month has elapsed since the Examiner’s report was submitted, the court has not yet issued a decision to commence rehabilitation proceedings. We cannot help but say that it is taking too long.  The report states that it is reasonable to make a decision to commence rehabilitation proceedings on the condition that “measures taken to ensure the benefits of the bankruptcy creditors” are satisfactory. However, the bankruptcy trustee has not yet informed the creditors whether these measures will be taken, and the bankruptcy trustee is of the opinion that the court should decide and that the bankruptcy trustee is not in a position to judge.

In order to resolve the situation, we submitted the motion to issue a decision to commence rehabilitation proceedings.

Thank you for your continued support.

 

The report of the creditors meeting on March 7, 2018

As we previously informed you, Mt. Gox’s creditors meeting was held on March 7, 2018. Handouts are available on the following Mt. Gox bankruptcy trustee’s website:

https://www.mtgox.com/img/pdf/20180307_report.pdf

 

  1. Report from the bankruptcy trustee

Details are posted on the above website. Especially noteworthy is that the bankruptcy trustee sold approximately 35,000 BTC and 35,000 BCH, and therefore obtained more than 40 billion yen (400 million dollars) from December 2017 through February 2018.

 

  1. Q&A session

Some creditors have said that they hope that these bankruptcy proceedings will be converted to civil rehabilitation proceedings.

A summary of the Q&A session is as follows:

 

Q1.     What is the meaning of the following terms stated in the examination report submitted by the examiner on February 28, 2018?

–   “the bankruptcy creditors (especially those having monetary claims corresponding to bankruptcy claims) who filed proofs of claims in the bankruptcy proceedings of Mt. Gox”;

–   “the benefits already expected to be obtained in terms of the bankruptcy proceedings”; and

–   “measures taken to ensure the benefits of the bankruptcy creditors”.

A1.     It is the examiner that wrote the examination report.  Therefore, we [the bankruptcy trustee] cannot answer regarding its contents.  We will discuss and consider the future direction with the bankruptcy court.

 

Q2.     Have you made a specific plan about the “measures taken to ensure the benefits of the bankruptcy creditors” stated in the examination report?  Do you intend to make any effort for the commencement of civil rehabilitation proceedings as the bankruptcy trustee?

A2.     We will discuss and consider the “measures taken to ensure the benefits of the bankruptcy creditors” with the bankruptcy court.  We understand the examiner’s concerns regarding the issue.  Therefore, we are ready to hear suggestions from creditors.

 

Q3.     When the content of the “measures taken to ensure the benefits of the bankruptcy creditors” has been decided, will we have the opportunity to receive an explanation beforehand as creditors?  Will I have a chance to state my opinion as a major creditor?

A3.     We will notify the creditors of our plan once it is determined.  We will hear the creditors’ opinions, and we would appreciate it if you could send us your written opinion.

 

Q4.     When and how did you sell BTC and BCH?  What was the difference between the sales figures for BTC and BCH?  Have you obtained any information from the U.S. Department of Justice on the disappearance of BTC?

A4.     We sold them at the market price through the cryptocurrency exchange service provider from December 2017 through February 2018.  The difference between the sales figures for BTC and BCH was just the timing of suspending sales; therefore, we did not have any particular intention.  We have not obtained any information from the U.S. Department of Justice.

 

Q5.     Please explain the current situation concerning the bankruptcy claims assessment procedure applied for by CoinLab, Inc.  Do you have any plans to pursue the liability of officers?

A5.     We do not have any specific ideas on settling the case for the time being, but we may consider that depending on the future situation.  We did consider suing Mr. Karpelès, but now it does not seem to be productive because he has gone bankrupt.

 

Q6.     Why don’t you distribute funds to the creditors even though there is enough cash in the bankruptcy estate?

A6      We obtained the cash recently by selling BTC and BCH.  With respect to distribution, there is an issue concerning assessing the amount of BTC creditors’ claims; therefore, it is difficult to determine whether proceeding with the distribution process would be desirable for the creditors.

 

Q7.     I think it is unjust to distribute the remaining assets to the shareholders of Mt. Gox.  Why don’t you proceed with the civil rehabilitation proceedings as Mt. Gox’s bankruptcy trustee?

A7.     We apologize if we have previously provided a misleading explanation, but we do not oppose transferring these bankruptcy proceedings to civil rehabilitation proceedings.  We understand the examiner’s concerns on the issue; however, it is the Tokyo District Court that has to decide whether to commence civil rehabilitation proceedings.

 

Q8.     I think it has taken far too long to proceed with the bankruptcy proceedings.  Is this due to the bankruptcy trustee neglecting its duties?

A8.     We recently obtained more than 40 billion yen (400 million dollars ) by selling BTC and BCH.  With respect to distribution, there is an issue concerning assessing the amount of BTC creditors’ claims; therefore, it is difficult to determine whether proceeding with the distribution process would be desirable for the creditors.

 

Q9.     I have never heard about the sale of BTC and BCH.  Why did you sell them when the market price of BTC crashed?  Why did you sell them in such a hurry?  Is selling BTC and other assets part of the “measures taken to ensure the benefits of the bankruptcy creditors” as pointed out by the examiner?

A9.     From the outset of the bankruptcy proceedings, we informed all relevant parties that we were going to sell BTC and BCH at the appropriate time.  We discussed this with the Tokyo District Court and decided when we should sell them.  Some creditors were of the opinion that we should sell BTC and BCH soon.  We believe that obtaining a lot of funds made it possible for us to take the “measures taken to ensure the benefits of the bankruptcy creditors”.

Creditors Meeting on March 7

The Examiner has submitted The Examiner’s Report as of February 28, 2018, but there are some conditions to fulfilling the CR requirements. Although the specific content of these conditions is not clear, as it is necessary to satisfy these conditions, it will require some more time to reach a decision to commence the CR.

As MTGOX’s creditors meeting is scheduled to be held on March 7, 2018, we will attend the creditors meeting, and confirm the current status of the bankruptcy proceedings.  We plan to inform you, by posting an article reporting on the contents of the meeting.

The Examiner’s Report

The Examiner has submitted The Examiner’s Report to the Tokyo District Court, as of February 28, 2018. The conclusion of the report is as follows.

The Examiner considers that MTGOX does not fall under Article 25, Items 2 to 4 of the Civil Rehabilitation Act. However, this conclusion assumes that the following measures are taken before the decision to commence the rehabilitation proceedings (in other words, the discontinuation of the bankruptcy proceedings), that ensure the benefits of the bankruptcy creditors (especially those having monetary claims corresponding to bankruptcy claims) who filed proofs of claims in the bankruptcy proceedings of MTGOX.  Those benefits are the benefits already expected to be obtained in terms of the bankruptcy proceedings, considering the size of the bankruptcy estate formed up to the present time.

The court has not decided whether or not CR shall commence; however, pursuant to the report, we expect that the court will issue an order to commence CR, with the condition that Mt. Gox will take measures to ensure the benefits of the bankruptcy creditors. We do not have any information concerning the details of such measures, but we will inform you of it when we have received it.

Our Activities for the Commencement of Civil Rehabilitation Proceedings

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

 

 

A news report on the filing of suits for the return of BTC by some creditors

A news item has reported that some creditors of Mt. Gox have filed an action, as of February 19, 2018, in Tokyo District Court, seeking the return of approximately 200,000 BTC, with the Mt. Gox bankruptcy trustee as the defendant.

According to these reports, the plaintiffs assert as follows: BTC managed by Mt. Gox comprises a trust property, therefore even if the ownership of BTC is not established, the BTC can be recovered. If the plaintiffs’ claims are upheld, the results would be the same as in the lawsuit which claims for the return of the BTC, which the creditors had raised previously.

Currently, we have petitioned the Tokyo District Court for the commencement of civil rehabilitation proceedings of Mt. Gox, and are undertaking various preparations for the decision to commence the rehabilitation proceedings. As the lawsuit raised this time has no effect on our activities, we will continue to work toward the decision to commence the rehabilitation proceedings.

In addition, we would like post, not only news about Mt. Gox, but also various information concerning the commencement of rehabilitation proceedings, therefore please check our website.

The examination order

The examination order issued by the court provides as follows:

  1. the court orders the appointment of an examiner of Mt. Gox,
  2. the court appoints Mr. Hisashi Ito, an attorney at law, as the examiner, and
  3. the examiner should conduct an investigation regarding whether the conditions of Articles 25(ii), 25(iii), and 25(iv) of the Civil Rehabilitation Act have been fulfilled, and report the results, in writing, to the court by February 28, 2018.

 

(For your reference: the Article 25 of the Civil Rehabilitation Act)

Article 25 (Conditions for Commencement of Rehabilitation Proceedings)

In any of the following cases, the court shall dismiss with prejudice on the merits a petition for commencement of rehabilitation proceedings:

(i) Where expenses for rehabilitation proceedings are not prepaid

(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 or approved or a rehabilitation plan is unlikely to be confirmed.

(iv) Where the petition for commencement of rehabilitation proceedings is filed for an unjustifiable purpose or it is not filed in good faith.

Involuntary Filing for Commencement of Civil Rehabilitation Proceedings regarding Mt. Gox Co., Ltd.

November 30, 2017

Involuntary Filing for Commencement of Civil Rehabilitation Proceedings regarding Mt. Gox Co., Ltd.

  1. 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.

  1. 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.

  1. 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.

  1. 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

 

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