Cryptopia users ‘entitled to their funds’: New Zealand court

Getting your Trinity Audio player ready...

Customers of defunct digital currency exchange Cryptopia are entitled to their funds, according to a landmark ruling by a high court judge in New Zealand.

In a precedent setting case for New Zealand law, the judge described digital currency as “property,” a definition which assigns all the rights of ownership to those who had funds stored with the exchange.

At the High Court in Christchurch, New Zealand, Justice Gendall J said digital currency falls within the definition of property under schedule 2 of the Companies Act of 1993, as a type of intangible property with intrinsic value.

“I reach the conclusion that the cryptocurrencies here situated in Cryptopia’s exchange are a species of intangible personal property and clearly an identifiable thing of value. The argument that cryptocurrency is mere information and therefore it is not property is a simplistic one and, in my view, it is wrong in the present context. I dismiss it.”

In a tweet from Cryptopia, the company said the ruling meant “cryptocurrencies are beneficially owned by the account holders and are not assets of the company,” with significant implications on how remaining assets are administered in liquidation.

(1/2) Today, 8 April 2020, Justice Gendall delivered his judgement finding firstly, cryptocurrencies are “property” within the definition outlined in s2 of the Companies Act 1993 and secondly, that account holders' cryptocurrency were held on multiple trusts, separated by …

— Cryptopia Exchange (@Cryptopia_NZ) April 8, 2020

The case presented high court judges with a battle between the rights of creditors and the rights of platform users, with the judgement determining whether users would be entitled to recover funds lost in priority to general creditors of the exchange.

With the judge ruling digital currency was property, rather than simple debt, the decision is a major boost for users of the platform trying to recover their money.

According to the 74-page text of the judgement, the case is the first of its kind to be heard in a New Zealand court, and could have implications for future instances where exchanges collapse: “This is the first occasion on which issues of this type concerning cryptocurrency have been before the courts in New Zealand.”

Cryptopia, which suffered a spectacular hack before falling into liquidation, currently holds users’ funds in the amount of NZ$170 million (~US$101 million). The funds can now be distributed by administrators to the 800,000 users of the platform affected by its collapse.

The disbursements will come ahead of the 37 creditors and 90 shareholders also hoping to receive a share of the funds and debt tied up in the company.