Cryptocurrency – hack of cryptocurrency company – liquidators appointed – request for realisation of cryptocurrency by liquidators – cryptocurrency requested trust property – Trusts Act 2019, s 81(2)
Ruscoe v Houchens  NZHC 2490 per Palmer J.
Cryptopia Ltd ran a cryptocurrency exchange. In January 2019, it was hacked, resulting in a loss of $30 million in cryptocurrency holdings.
In May 2019, Cryptopia’s shareholders appointed David Ruscoe and Malcolm Moore of Grant Thornton as liquidators of the company. The liquidation is complex, involving 370 functioning cryptocurrencies, owned by 960,000 holders in 180 countries.
In April 2020, the High Court determined that each type of cryptopcurrency is intangible property held by Cryptopia as trustee for the benefit of all the account holders of that currency.
The liquidators have created a portal for account holders to verify their balances. However, a significant proportion of Cryptopia’s holdings (predominantly in Bitcoin and Dogecoin) remains unclaimed.
To cover liquidation costs, the court approved the conversion of Dogecoin and Bitcoin into fiat currency on three occasions. The current asset value remains confidential.
The liquidators estimate that $5m would allow them to apply to the High Court for distribution of the cryptocurrency assets and continue to operate for another 12 months. This would be drawn from the trust property in accordance with s 81(2) of the Trusts Act 2019.
Four respondents, each a Cryptopia account holder, opposed the application.
The respondents cited concerns about their cryptocurrency return, account balances, the acceptance process, and lack of information. They claimed the trust administration process had been mismanaged. The liquidators addressed these concerns and the High Court granted the application on 10 August 2023, due to the liquidators’ urgent need for funds.
The court found the respondents’ concerns did not amount to proof of a breach of trust and were not sufficiently substantiated to delay distribution to an estimated 800,000 beneficiaries. Palmer J made an order to realise the cryptocurrency.
Applicable principles: liquidation – liquidator appointment – realisation of assets – asset valuation – liquidation plan – distribution plan – Trusts Act 2019, s 81 – realising trust assets – trustee right to indemnity
Held: Application granted for the realisation by the liquidators of $5m worth of cryptocurrency, which is trust property.
Jamie Dierick is a law clerk working for an Auckland criminal defence barrister.