Some interesting and trendsetting news from Japan’s bankruptcy courts surfaced at the end of the summer of 2018. Nobuaki Kobayashi, the trustee of a hacked Japanese cryptocurrency exchange’s bankruptcy estate, opened an online claims submission process for interested parties to recoup their losses. What made this a potentially trailblazing event, was that Kobayashi, as trustee, had the ability to make distributions in bitcoin and BCH (bitcoin cash), in lieu of paying the claims’ value in fiat currency. More than some would say this is a significant procedural achievement for creditors and is likely a harbinger of the future.
The bankruptcy case’s debtor was Mt. Gox, which filed for bankruptcy relief in February 2014. The theft of 850,000 bitcoins, valued at more than $450 million, owned by the company and its customers precipitated the bankruptcy filing. An alleged internal crisis management document leaked to the public claimed that the company was insolvent, and placed the loss at 744,408 bitcoins, noting further that the theft was undetected for years. From February 1, 2014, until the end of March, the value of bitcoin declined by 36% worldwide.2014,
In the middle of August 2018, Kobayashi initiated the online claims submission process for creditors to recover their losses. This was extended to corporate creditors on September 22, 2018, and to transferees or claims purchasers on October 3, 2018. The trustee’s actions were the result of a June 22, 2018, order suspending Mt. Gox’s bankruptcy proceeding and commencing civil rehabilitation proceedings. This transition to a civil rehabilitation proceeding allowed Kobayashi to make the distributions in cryptocurrency.
On Sept. 26, 2018, the U.S. District Court for the District of Massachusetts ruled that bitcoin and other cryptocurrencies are “commodities,” under the Commodity Exchange Act’s definition. This follows legal debates related to classifying bitcoin as currency or commodity. The valuation of commodities is an important aspect of assessing the feasibility of Chapter 11 plans of reorganization. Given the unique, if not unprecedented, volatility of cryptocurrency as a bankruptcy asset, it remains to be seen the extent to which courts consider and value all types of cryptocurrencies in the multiple contexts of a bankruptcy proceeding.
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