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

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.

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.

2. 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”.

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 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.

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 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 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.

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.

2. 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.

3. 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.

4. 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