Mt. Gox’s Bankruptcy

A recent article in the Daily Recorder examined a number of issues related to the bankruptcy filing of Mt. Gox—a bitcoin exchange based in Japan. Mt. Gox has filed a civil rehabilitation proceeding in Japan, which resembles a chapter 11 filing in the U.S. Mt. Gox also filed a related case in the U.S. under chapter 15, and the judge granted an initial stay against creditor claims.

 

The objective of the Japanese proceeding is to rehabilitate, rather than liquidate, the debtor. Although the existing management team can remain in place (as in chapter 11), the Japanese court also appoints a supervisor and investigator; this person prepares a report regarding the probability of a successful rehabilitation by the debtor, which is filed with the court. The debtor then has a short time in which to prepare and submit a rehabilitation plan. At this point, the court must find that the debtor will likely be successful in executing the plan. And finally, the plan must be approved by a majority of the unsecured creditors. Otherwise, the debtor may have to undergo liquidation.

 

In Japan, secured creditors can pursue their claims outside of the rehabilitation proceeding, unless the court orders otherwise. Secured creditors in the U.S. will be stayed, however, if the chapter 15 case moves forward.

 

The authors of the article noted two interesting facets of the case that relate to the unique nature of the debtor here. First, they suggested that people who have recently conducted transactions through the Mt. Gox exchange need to consider if their transactions could be deemed fraudulent transfers or preferences, and potentially avoided. I’m struggling to see how those concepts would apply in this situation. My understanding is that people traded dollars for bitcoins and vice versa through Mt. Gox and maintained accounts (similar to bank accounts) with Mt. Gox. Any exchange would have been for fair market value and any withdrawal would have been of funds belonging to the customer. Does anyone have any thoughts on how these transactions might be challenged based on fraudulent transfer law or avoided as preferences?

 

The authors also observed that a debtor would normally have to notify creditors of a chapter 15 case through their mailing address. But since Mt. Gox apparently only collected e-mail addresses from customers/creditors, the court would likely have to order Mt. Gox to provide such notice by e-mail.

 

See The Daily Recorder, 3/28/2014, “How will Mt. Gox’s bankruptcy shake out?”