On April 28, in the wake of Mt. Gox’s Japanese rehabilitation proceeding having been converted to a liquidation proceeding, a proposal for selling and restarting the Mt. Gox exchange was submitted in the pending class action litigation in Illinois. The proposal was accepted by plaintiffs in the class action litigation before a class had even been certified.
During the April 30 status conference before the U.S. Bankruptcy Court in Dallas in the chapter 15 proceeding instituted prior to the Japanese conversion to liquidation, the proposal received a cool reception from Coinlab, Inc. Perhaps more significantly, the attorney for Japanese bankruptcy trustee Nobuaki Kobayashi did not embrace the proposal. The rapidity of the proposal’s crafting has left a need to address many more issues before it can become a reality.
Under the proposal (which would require the approval of the courts in Illinois, Dallas and Japan), Sunlot Holdings Ltd. (“Sunlot”) would acquire all of the shares in Mt. Gox for 1,000 JPY. Sunlot would also receive all of the Bitcoin as well as almost all of the fiat currency held by Mt. Gox. The sum of $10 million USD would remain under the control of Kobayashi for upfront funding for case administration and for litigation to pursue additional Mt. Gox Bitcoin and other assets. PricewaterhouseCoopers (or a similar firm) would conduct an audit of customer accounts that would be used as the basis for the pro rata distribution of Bitcoin and fiat currency in customer accounts and the 200,000 Bitcoin recently discovered.
Importantly, the amount going to depositors appears to be a “net” distribution after deducting fees and expenses in the class action litigation (the scope of which remains unknown). Sunlot would then be empowered to pursue claims against those accountable for customer losses in exchange for 10% of that recovery. Once the audit was concluded, the pro rata (net of fees) amount of Bitcoin and currency in their accounts would be deposited into those customers’ accounts in the New Gox exchange. (This general summary is not a substitute for reviewing the actual underlying documents, which reflect a complex set of transactions.)
As noted, the Sunlot proposal was embraced by neither Coinlab nor Kobayashi. A number of questions will have to be resolved in favor of the putative class action plaintiffs before Sunlot could own the exchange, including these:
- How will the two bankruptcy proceedings deal with depositors’ claims in different denominations (depositor claims in Bitcoin and vendor claims in fiat currency) to create an equitable distribution between the two?
- Will Kobayashi accept a proposal that transfers substantial assets of Mt. Gox for a nominal amount that would appear to primarily benefit one type of claimant (depositor) over another (vendor / supplier)?
- Will Kobayashi accept a proposal that would place Sunlot in charge of litigation to recover assets instead of prosecuting that litigation in his capacity as a bankruptcy trustee in Japan and a foreign representative in the U.S.?
- Will the Sunlot proposal generate other offers that might be higher or better for the Japanese bankruptcy process or that might not use part of depositor recoveries to pay class action litigation costs?
- Will Kobayashi seek to use this proposal to generate an auction sale process in the Japanese bankruptcy proceeding?
The Sunlot proposal can be viewed as an opening bid. It starts a process and no one can fully predict how it will conclude or how many twists and turns lay on the road ahead.