The exchange lost $ 30mln Cryptopia announced the remaining funds will be returned to the holders

In the hacking from New Zealand cryptocurrency exchange Cryptopia, users finally have some good news. In a court ruling on how the remaining crypto assets will be distributed, Justice David Gendall at the High Court in Christchurch stated that the exchange users have the right to the assets they hold in the Cryptopia account, deciding they should be classified as “property” as they have been kept in separate trust accounts.

Cryptopia users, at last, have a little good news

An alternative ruling would have seen the assets classed as typical debt to be distributed among both users and creditors.

Justice Gendall described the case in a document published on Wednesday:

“Effectively, the tussle which is before the Court is one between the creditors of Cryptopia on the one hand and the account holders who have invested in the various digital assets on the other.”

The company has more than 800,000 users with positive balances that need to be repaid, but 37 creditors and 90 shareholders are also competing for their stakes in the company’s remaining assets. Following the hack in January of last year, it was discovered that Cryptopia lost about 30 million New Zealand dollars ($ 17.85 million) in various cryptocurrencies – funds that are still missing with police even not having disclosed if they have any real suspects.

The breach has left cryptocurrency assets worth about 170 million New Zealand dollars ($ 101 million) held by the exchange. Grant Thornton New Zealand, which was assigned to oversee the firm’s liquidation process last May, is still trying to ascertain the details of which users held which cryptocurrencies due to poor record-keeping at Cryptopia.

Also revealed on file is that the creditors will likely end up with a portion of other Cryptopia funds worth 5.4 million New Zealand dollars (3.2 million US dollars). That’s less than half of New Zealand’s 12.7 million ($ 7.5 million), of which New Zealand’s ta department also seeks NZ$5 million ($2.9 million).

With lawyers representing the creditors and the exchange users both taking different stances on the key issue of whether the crypto assets are indeed property (the creditors said they are not), Justice Gendall ultimately said:

“I reach the conclusion that the cryptocurrencies here situated in Cryptopia’s exchange are a species of intangible personal property and an identifiable thing of value. Without question, they are capable of being the subject matter of a trust.”

He concluded:

“The argument that cryptocurrency is mere information, and therefore, it is not the property is a simplistic one and, in my view, it is wrong in the present context. I dismiss it.”

Account holders win battle over assets worth $140m

Investors who had accounts with Christchurch-based digital currency exchange Cryptopia have won an unprecedented contest over funds held on their behalf.

Cryptopia went into liquidation in May last year after a $30 million hack in January 2019 pocketed about 15% of its clients’ digital currency stock, made up of about 900 different currencies, including bitcoin. It is regarded as the most significant theft in New Zealand history.

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Cryptopia co-founders Rob Dawson (left) and Adam Clark, pictured in 2017 when the company as booming

The exchange was holding cryptocurrencies worth about $ 170 million and had 800,000 account holders with a positive coin balance. The company’s liquidators went to the High Court in Christchurch in March, asking for guidance on whether the account holders were entitled to all the currencies in their accounts or whether the funds were debts that ranked along with other creditors.

Creditors were owed about $12m, including Inland Revenue claiming about $5m. A decision for the account holders meant creditors would get about half of what they were owed.

In a judgment released on Wednesday, Justice David Gendall found for the account holders, saying Cryptopia held the digital assets on trust by way of a separate faith for each cryptocurrency. ​The requirements of an express trust were met in the way Cryptopia operated the exchange and handled the cryptocurrencies on behalf of the account holders, the judge said.

He recognized the unusual nature of the case saying:

“Counsel advises that to the best of their knowledge, and this is the first occasion on which issues of this type concerning cryptocurrency have been before the courts in New Zealand.”

​Liquidators David Ruscoe and Russell Moore of Grant Thornton have already spent $ 3 million to secure the cryptocurrencies still in the exchange.

Police are still investigating the theft, but are not saying whether they have narrowed the extensive pool of persons of interest.

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