Back in November, anonymous creditors behind mtgox-creditors.com filed a request to end the bankruptcy and move Mtgox into Civil Rehabilitation.
Civil Rehabilitation is generally used as a means of restructuring a failing company while protecting it from lawsuits. In the case of MtGox, it’s not likely to be used to actually restructure the company but rather as a more flexible form of bankruptcy. This is a standard and tested use of Civil Rehabilitation, though less common than the restructuring scenario.
Instead of following a rigid set of steps as in bankruptcy, the trustee would be free to create his own plan. And most importantly, the bitcoin claims will be able to be revalued – hopefully in bitcoin this time. The creditors will get to vote on this plan.
The most obvious distribution would be that the fiat creditors would be paid back 100% of their claim because by law they couldn’t be paid less than they would under bankruptcy. Then we would expect the bitcoin creditors to share what remains of the bitcoins. However, the rules of CR could be interpreted in such a way that the court could potentially have issues with doing it this way so we’ll have to see what happens. Perhaps Kraken will end up distributing the bitcoins after all.
Likelihood of going ahead
A court examiner tasked with giving an opinion about 3 of the entry conditions reports his conclusion to the court on 28th February, and shortly after the court will make a decision whether we can progress down the path of Civil Rehabilitation.
It looks extremely likely that the examiner will give this his green light, despite that there have been claims to the contrary for the purposes of raising funds from creditors.
In order to argue against it, the examiner would have to make the case that either the bankruptcy is more suitable from the perspective of creditors in general, or it is obvious that a CR plan would not be approved by creditors or the court, or the petition for CR is filed for unjust purposes. The examiner would simply not have sufficient grounds to support these arguments. However if he did try to, and the court subsequently denied the request, there would be plenty of opportunity and ammunition to appeal.
Moving into Civil Rehabilitation would be a great benefit for almost everyone. We as creditors should get our bitcoins returned. The Japanese government can diffuse the internationally embarassing situation which is mounting over the MtGox bankruptcy. The Japanese legal system can escape from the nightmare of MtGox with its dignity bruised but still relatively intact. Mark Karpeles can avoid the poisoned money. Win-win-win-win.
It would technically not be in the financial interests of the shareholders, which could drag in the Tibanne trustee, but the court would not take the shareholders’ interests into consideration when making the decision.
Revaluation Of Claims
We would have to go through another claims process. In a practical sense, there would be no need to re-file claims because the data is already collated, including the bitcoin value. However legally if the claims are carried over from bankruptcy then the same yen amount has to be used. Therefore we would probably have to refile all the claims. The trustee may be able to use the existing claims data to expedite the process however.
The good news is for those who didn’t get a claim in the first time round there would by law be a reopening of the claims process for those people.
Coinlab’s claim – good news
The rules for Coinlab’s claim would be largely the same under Civil Rehabilitation as under the Bankruptcy Act.
However, there would a big difference in the situation. There’s no reason why the creditors cannot be paid back while such a (relatively) small claim is pending, therefore our money would no longer be held to ransom. The bitcoins are worth approximately $2.1 billion, Coinlab’s claim is roughly 3.5% of that. It would be fair to expect the trustee to distribute almost all of the money while Coinlab’s case is still pending. So effectively, Coinlab would be likely to become a very small issue.
If Coinlab’s claim is no longer holding up the main distribution, it will lose its teeth and it wouldn’t be a big issue to just let it work its way through the legal system until it eventually gets excreted out. Goodbye Peter.
Alternatively, Coinlab might realise that their leverage is disappearing and accept a lowball offer by the trustee.
Creditors meeting, March 7th
It seems probable that the court’s decision will still be pending when the creditors’ meeting happens, and given the likely switch to CR, I expect this will be one of the less interesting or important meetings. Hopefully it will be the last one though.
Civil Rehabilitation runs pretty quickly. According to statistics published by Tokyo District Court, a Civil Rehabilitation plan is generally confirmed by the court within 5-6 months of filing the petition, and by then the claims are normally finalised. At that point there’s no reason why we couldn’t move towards the main distribution whilst leaving some money for pending claims like Coinlab. So we could well have most of our money by later this year.