Today, Grant Thornton New Zealand released the third statutory report in the Liquidation of Cryptopia Limited, a cryptocurrency exchange based in Christchurch. In a world-leading case for which there was no legal precedent, a court hearing held in April gave a clear ruling about the status of the assets and that they were held in trust for the account holders. Further steps need to be taken before assets can be distributed.
Cryptopia was hacked in January 2019 and cryptocurrencies valued at approximately NZD$30m were stolen. Cryptopia closed after the hack, re-opened for a short period, and was then placed into liquidation in May 2019.
In October 2019, David Ruscoe and Russell Moore from Grant Thornton filed an application with the High Court seeking directions on a variety of issues around the property rights of Cryptocurrency and account holders’ relationship with the exchange.
In February 2020, a four-day hearing was held with Court-appointed counsel representing the interests of both account holders and unsecured creditors to ensure the Court received the benefit of full and contested argument for the benefit of both affected interests. Two sides were presented to ascertain whether assets were held on behalf of trusts or the company.
In April 2020, the Court released its judgment, which held that:
- All of the cryptocurrencies constitute “property” under the Companies Act 1993
- The cryptocurrencies are held on express trust by Cryptopia for the accountholders as beneficiaries; a separate trust exists for each type of cryptocurrency
- If the liquidators are unable to identify any particular account holder, the process prescribed by s 76 Trustee Act 1956 should be followed
- To the extent the liquidators recover stolen digital assets, they are to be dealt with pro-rata within each specific trust according to the amounts recovered assessed against the amounts stolen
“Given the lack of legal precedent for crypto assets in New Zealand and worldwide, it was an important step in the liquidation process to get a clear ruling from the High Court as to the status of crypto assets, and to provide clarity as to whether the crypto assets were held in trust for the account holders. We are pleased that the directions from the Court provide that clarity,” says David Ruscoe.
“However, as outlined in our statutory report, we still need to complete a number of steps before we can distribute to account holders. In particular, we need to complete the account reconciliation process, confirm our AML procedures with several government authorities, and confirm our method of distribution. This will require us to seek further directions from the High Court, at a time yet to be determined”
Where to go for updates
Grant Thornton appreciates that account holders want to be advised of progress on the Cryptopia liquidation. The firm will continue to update stakeholders as further information comes to hand. Updates can be found on the Grant Thornton New Zealand and Cryptopia websites and their respective social media channels.
