Ruscoe v Houchens - [2023] NZHC 2490

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

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

CIV-2023-485-375

[2023] NZHC 2490

UNDER Part 16 of the Companies Act 1993

IN THE MATTER OF

Cryptopia Limited (in liquidation)

BETWEEN

DAVID IAN RUSCOE AND MALCOLM RUSSELL MOORE

Applicants

AND

RYAN HOUCHENS

First Respondent

AND

GIA THANH PHAN

Second Respondent

AND

TRISTEN ROBINSON

Third Respondent

AND

JOSHUA DAVID STEVENSON

Fourth Respondent

Teleconference: 9 August 2023

Counsel:

S A Barker and B E Marriner for the Applicants

E B Moran and C M McCracken for the Respondents

Judgment:

6 September 2023

JUDGMENT OF PALMER J

(Reasons for decision on sale application)

Solicitors
Buddle Findlay, Wellington
DLA Piper New Zealand, Wellington

RUSCOE v HOUCHENS [2023] NZHC 2490 [6 September 2023]

What happened?

Cryptopia

[1] Cryptopia Ltd (Cryptopia) is a company that ran a cryptocurrency exchange. In January 2019, there was a serious hack of Cryptopia’s cryptocurrency and the loss of some $30 million of its cryptocurrency holdings.1 In May 2019, the shareholders of Cryptopia appointed Mr David Ruscoe and Mr Malcolm Moore as liquidators of the company under s 241(2)(a) of the Companies Act 1993. Mr Ruscoe and Mr Moore are chartered accountants, partners in the firm Grant Thornton New Zealand Ltd, and licenced insolvency practitioners. 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.

[2] 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 The High Court’s judgment sets out a more detailed account of the factual background of the liquidation.

Realisation of cryptocurrency to fund liquidation costs

[3] Since appointment, the liquidators have, among other things, developed a portal to enable account holders to receive notification of their account balance. 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.

[4] The liquidators advise that some 90 per cent of the total current value of all holdings held on trust by Cryptopia are in Bitcoin (BTC) and Dogecoin (DOGE).

1 All $ amounts referred to in the judgment are New Zealand dollars.
2 Ruscoe v Cryptopia Ltd (in liq) [2020] NZHC 728, [2020] 2 NZLR 809 at [120], [133], [187], and
[196].
3 At [146].

approximately 24 per cent of Cryptopia’s BTC holdings and 34 per cent of its DOGE holdings have been claimed by account holders. 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. Accordingly, it appears at present that there is…

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 Ruscoe v Houchens

Details

AGLC: Ruscoe v Houchens [2023] NZHC 2490
Case: [2023] NZHC 2490
Decision Date: 6 September 2023

CaseChat Overview and Summary

In the case of Ruscoe v Houchens, the High Court of New Zealand was asked to decide whether the liquidators of Cryptopia Ltd, David Ian Ruscoe and Malcolm Russell Moore, could convert a portion of the company's cryptocurrency holdings into fiat currency to fund the costs of the liquidation. The liquidators, who had been appointed to manage the liquidation of Cryptopia, a cryptocurrency exchange that had experienced a significant hack, sought to sell cryptocurrency to cover the costs of their work. This was the fourth such application they had made to the Court. The application was opposed by four respondents, who were account holders in Cryptopia and who expressed concerns about the liquidators' handling of the liquidation process. The primary legal issues the Court had to address were whether the liquidators were entitled to be reimbursed for their costs from the trust assets under the Trusts Act 2019 and whether the Court had the inherent jurisdiction to award costs to the liquidators. The Court found that the liquidators were acting within their rights under the Trusts Act and that the Court had the inherent jurisdiction to award costs to the liquidators. The Court also found that the concerns raised by the respondents did not amount to good reason to prevent the liquidators from proceeding with the distribution of assets to the approximately 800,000 beneficiaries.

The Court's reasoning was grounded in the understanding that the liquidators were trustees of the assets held by Cryptopia and, as such, were entitled to reimbursement from the trust assets for their reasonable costs. The Court noted that the liquidators had provided detailed evidence of how the funds would be expended and had regularly reported to account holders and creditors. The Court also found that the liquidators had maintained separate accounts for the costs incurred in the liquidation of Cryptopia and the costs incurred in the administration of the cryptocurrencies on behalf of the account holders. The Court concluded that the liquidators had correctly understood and engaged with their duties as trustees and that the respondents' concerns, while noted, did not provide a sufficient basis to prevent the liquidators from proceeding with the distribution of assets. The Court granted the liquidators' application, allowing them to convert a portion of the company's cryptocurrency holdings into fiat currency to cover the costs of the liquidation.

Orders