In January 2019, the Cryptopia exchange was hacked and cryptocurrencies valued at approximately NZD30m were stolen. Cryptopia closed after the hack, re-opened for a short period, and was then placed into liquidation in May 2019. David Ruscoe and Russell Moore of Grant Thornton New Zealand were appointed liquidators.
Following their appointment, the liquidators took control of the cryptocurrencies held in the company’s name and applied to the High Court for directions on a range of issues, including whether the cryptocurrencies were held on trust for account holders or whether the cryptocurrencies were owned by Cryptopia and able to be distributed to creditors.
The directions application involved a number of issues, such as whether Cryptocurrencies are “property” for the purposes of the Companies Act and whether Cryptocurrencies are held on trust by the company for its accountholders. The Court appointed counsel represented the interests of accountholders and unsecured creditors respectively, to ensure the Court received the benefit of full and contested argument on the issues.
On the 8 April 2020, the High Court released its decision firstly, that Cryptocurrency is “property” for the purposes of the Companies Act 1993 and therefore the common law. And secondly, that accountholders' cryptocurrency is held on express trust by Cryptopia and a separate trust exists for each type of cryptocurrrency. This means that the cryptocurrencies are beneficially owned by the account holders and will not form part of the pool of assets available to unsecured creditors. This is the first final judgment on a fully contested basis that has considered whether cryptocurrency satisfies the legal definition of property at common law.
This decision gives guidance to insolvency practitioners and others on how cryptocurrencies ought to be treated, and addresses issues that are likely to become more prevalent as the popularity of cryptocurrencies increases.
The full decision can be found here.
Where to go for updates
We appreciate that you want to be advised of our progress on the Cryptopia liquidation. We will continue to update you 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.
The next statutory report is due in May and we will provide a formal update on the liquidation progress via this report. Further analysis of this judgement and implications for stakeholders will be provided in the coming weeks.