The bankruptcy of Mt. Gox has lasted longer than the exchange was actually in business. A recent decision to change the case’s status from “Bankruptcy” to “Civil Rehabilitation” may mean early Bitcoin owners may get some of their assets back. Or, it could mean years of on-going litigation. Here’s everything you need to know about the Mt. Gox Civil Rehabilitation.
From Bankruptcy to Civil Rehabilitation
Amid rumors of hacks and embezzlement, the Japanese Bitcoin exchange Mt. Gox suspended withdrawals and trading in early 2014 — 43 months after its founding in 2010. The Tokyo District Court declared in April 2014 that Mt. Gox was insolvent and began bankruptcy proceedings. Now, 52 months later, not one of Mt. Gox’s customers has gotten a single yen or satoshi.
Part of the reason for the delay lies in the sheer complexity, both technical and legal, of unwinding a cryptocurrency exchange. The court-appointed trustee, Nobuaki Kobayashi, had to launch a forensic investigation to track down bitcoin that had been stolen, misplaced or lost from Mt. Gox’s wallets.
A lawyer rather than a blockchain expert, Kobayashi turned to Jesse Powell, the founder of crypto exchange Kraken, for help. On a volunteer basis, Powell and his team helped recover more than 200,000 bitcoin. Powell said in an announcement: “Kraken is proud to volunteer our resources and expertise in an attempt to minimize damage to creditors, restore faith in the bitcoin community, and demonstrate trusted leadership in the industry.”
The case is made even more complicated by bankruptcy and criminal proceedings against the various people and holding companies involved in Mt. Gox when it went down.
Under Japanese bankruptcy law, the value of creditors’ claims must be calculated at the time the company enters bankruptcy. The amount owed to creditors was calculated based on a bitcoin price of around ¥50,000, or $480. The number of bitcoins still in Mt. Gox’s wallets, plus the bitcoin cash Mt. Gox got after the hard fork, weren’t enough to make people whole. So the payout was calculated proportionally for everyone who had submitted a successful claim by the May 2016 deadline. After that, the yen amount was locked in place.
And then the price of bitcoin exploded.
Who never prospers?
Over the course of 2017, the price of bitcoin kept climbing beyond the point where liquidating the assets would cover those payouts. And that’s where things got more complicated because, under Japanese bankruptcy law, any money leftover after the liquidation goes to the company’s shareholders. And most of Mt. Gox is owned by a Japanese company wholly owned by the exchange’s former CEO, Mark Karpeles.
Mt. Gox’s creditors didn’t want to see the liquidation of their bitcoins get turned into a windfall profit for the man they felt caused the problem in the first place. So in late 2017, they asked the Tokyo District Court to change the case from bankruptcy to “civil rehabilitation”.
Under civil rehabilitation, a company’s assets are distributed to the creditors rather than being liquidated. The payout would then be a proportional share of the bitcoin and bitcoin cash in the Mt. Gox wallet.
The court agreed with the Mt. Gox creditors in June 2018 and changed the case’s status.
How Do I Get My Bitcoin?
Kobayashi, who has consistently and publicly communicated developments in the case, announced in June that the courts had appointed him the Civil Rehabilitation Trustee. Of course, the way claims are filed under a bankruptcy is different from the way claims must be filed under a civil rehabilitation.
Civil Rehabilitation Claims Process
Kobayashi and his staff created an online system for filing claims. It first asks you to set up 2-Factor Authentication (2FA) and log in with your Mt. Gox user credentials. Then you enter the amount of fiat and bitcoin that you are claiming. The system automatically calculates the amount of bitcoin cash you can claim.
For certain people or businesses, the online system won’t work. For example, if you’ve forgotten your Mt. Gox password or can’t complete the 2FA registration. In that case, an offline process lets you enter the information in a PDF form and then mail the printed and signed document to the trustee’s office in Tokyo.
Detailed instructions for completing the online of offline claims process are on the Mt. Gox claims site as well as the Mt. Gox trustee’s site. You should review the detailed process with your legal and financial advisors before filing the claim.
Civil Rehabilitation Timeline
The specific schedule appears to be a work-in-progress, but there is one firm deadline. Anyone filing a claim must have it filed with the trustee in Japan by October 22, 2018. Kobayashi has until late January 2019 to review, accept and reject the claims he receives. By mid-February 2019, Kobayashi must submit a rehabilitation plan to the Tokyo District Court for review.
When Will Mt. Gox End?
There’s no easy answer to that question. Once the Tokyo District Court receives Kobayashi’s rehabilitation plan, the lawyers will move in so it’s anyone’s guess when — or even if — anyone will see their bitcoins.
Mt. Gox itself is represented by Kobayashi. But 88% of Mt. Gox is owned by a company called Tibanne whose corporate lawyers will be getting involved. Tibanne is owned by Karpeles, which complicates things even more, since he’s the target of embezzlement investigations in Japan and the United States.
Nobody knows for sure who owns the other 12% of Mt. Gox, but many assume that it belongs to the original founder Jed McCaleb.
Another company, CoinLabs, has claims filed against Mt. Gox. Before the collapse, Karpeles had signed a deal that would let CoinLabs service the exchange’s US customer. The deal fell apart before it even started and triggered mutual lawsuits between the two companies. CoinLabs since went bankrupt, but the company’s multi-million dollar claims against Mt. Gox are still outstanding.
A New Zealand exchange called Bitcoinica had assets on Mt. Gox, so the lawyers representing the now-bankrupt company will be having their say.
Bitcoin advocate Roger Ver is deeply embedded in the entire thing. He had coins on Bitcoinica when it went belly up. He had coins on Mt. Gox when it fell apart. And he was an investor in CoinLabs.
In the end, there’s no way of knowing whether civil rehabilitation is the light at the end of the tunnel or just another locomotive plowing into the Mt. Gox train wreck. All creditors can do is talk to their lawyers and submit their claims. And then wait.