Houchens v Ruscoe - [2023] NZHC 2969

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2023-485-431

[2023] NZHC 2969

UNDER Part 16 of the Companies Act 1993

IN THE MATTER OF

Cryptopia Limited (in liquidation)

BETWEEN

RYAN HOUCHENS

First Applicant

AND

GIA THANH PHAN

Second Applicant

AND

TRISTEN ROBINSON

Third Applicant

AND

JOSHUA DAVID STEVENSON

Fourth Applicant

AND

DAVID IAN RUSCOE AND MALCOLM RUSSELL MOORE

Respondents

Hearing 12 September 2023

Counsel:

E B Moran and C M McCracken for the Applicants

M A Corlett KC and B R McKinnon for the Respondents

Judgment:

24 October 2023

JUDGMENT OF PALMER J

(appointment application)

Counsel/Solicitors
M A Corlett KC, Auckland J S Cooper KC, Auckland P G Watts KC, Auckland Buddle Findlay, Wellington
Buddle Findlay, Christchurch
DLA Piper New Zealand, Wellington

HOUCHENS v RUSCOE AND MOORE [2023] NZHC 2969 [24 October 2023]

What happened?

Liquidation

[1] My reasons judgment of 6 September 2023 in related proceedings set out the recent history of the liquidation of Cryptopia Ltd (Cryptopia), which ran a cryptocurrency exchange.1 In summary, relevantly:

(a)In May 2019, after a serious hack of its cryptocurrency in January 2019, the shareholders of Cryptopia appointed Mr David Ruscoe and Mr Malcolm Moore, of Grant Thornton New Zealand Ltd, as liquidators of the company under s 241(2)(a) of the Companies Act 1993.

(b)The liquidation involves complex arrangements regarding around 370 functioning cryptocurrencies owned by some 960,000 holders of accounts with positive balances in around 180 countries.

(c)On 8 April 2020, the High Court determined that each type of cryptocurrency is intangible property held by Cryptopia as trustee for the benefit of all the account holders of that currency.2 Cryptopia itself is a beneficiary of some of those trusts.3 That judgment sets out a more detailed account of the factual background of the liquidation.

(d)The liquidators have developed a portal to enable account holders to receive notification of their account balance. Some 40,000 account holders who have completed identity verification have been invited to accept their account balances, to confirm that Cryptopia’s reconciled database records were correct. Cryptopia’s customer service team has dealt with over 94,000 user queries. There have been over 70 email campaigns to encourage more account holders to participate in the process.

1 Ruscoe v Houchens [2023] NZHC 2490 [Reasons Judgment].
2 Ruscoe v Cryptopia Ltd (in liq) [2020] NZHC 728, [2020] 2 NZLR 809 at [120], [133], [187], and
[196].
3 At [146].

(e)A significant number of account holders have not registered and a large proportion of those who have registered have not completed the identity verification process. A large number of beneficiaries, in number and by percentage value, are not expected to participate in the distribution process.

(f)While the current value of the company’s assets is being kept confidential for commercial reasons, the liquidators advise that the total costs they have incurred to date remain a very low percentage of the value of the total funds under management.

Previous applications

[2] The liquidators have…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Houchens v Ruscoe

Details

AGLC: Houchens v Ruscoe [2023] NZHC 2969
Case: [2023] NZHC 2969
Decision Date: 24 October 2023

CaseChat Overview and Summary

The case of Houchens v Ruscoe involves an application by four account holders of Cryptopia Limited, a New Zealand-based cryptocurrency exchange that entered liquidation, for the appointment of a special trust adviser and an independent representative to oversee the liquidation process and protect their interests. The respondents, the liquidators David Ruscoe and Malcolm Moore, opposed the application. The legal issues before the Court were whether the Court had jurisdiction to appoint a special trust adviser and an independent representative, and if such appointments were necessary to safeguard the interests of account holders. The Court considered the relevant provisions of the Trusts Act 2019, the High Court Rules 2016, and the inherent equitable jurisdiction of the Court.

The Court found that the applicants did not provide sufficient evidence of a breach of trust to justify the proposed appointments. The concerns raised by the applicants were described as generalised and speculative, rather than substantiated issues of trust mismanagement. The Court also concluded that the identified statutory provisions did not grant the authority to appoint a special trust adviser or independent representative with the extensive powers sought by the applicants. Specifically, the Court held that a special trust adviser cannot be given supervisory functions over trustees, nor can they require trustees to consult or provide information. Such powers would exceed the advisory role of a special trust adviser and intrude upon the exclusive management and administration of trust property by the trustee.

The Court further reasoned that the liquidators, as licensed insolvency practitioners from a reputable firm, already provided sufficient protection for account holders. The Court had already appointed counsel to assist in representing the interests of unsecured creditors and another counsel to make arguments in the independent interests of account holders. The Court found that these measures were more effective in protecting the interests of account holders than the proposed appointments. The Court dismissed the application, holding that no unfairness affecting account holders' interests had been identified that could not be reasonably addressed through existing representation and statutory mechanisms.

The Court's judgment provides a detailed analysis of the relevant statutory provisions and case law relating to the role and powers of special trust advisers. The Court's decision highlights the limited scope of the statutory provisions and the inherent equitable jurisdiction in appointing special trust advisers, which do not extend to supervising or directing trustees. The judgment also underscores the importance of providing substantiated evidence of a breach of trust to justify the appointment of special trust advisers with extraordinary powers.

Orders