Mt. Gox abandons civil rehabilitation procedure, calls for liquidation

Mt. Gox files for liquidation

Mt. Gox CEO Mark Karpeles made a press release today. The failed exchange abandoned the civil rehabilitation procedure and will likely file for liquidation.

It seems Mt. Gox has stepped away from its plans to rebuild the exchange under bankruptcy protection. According to The Wall Street Journal, the failed exchange has asked a Tokyo court to allow it to be liquidated. The newspaper cites sources ‘familiar with the situation’, so absolute certainty cannot be obtained regarding this message.

Press release

The people that Wall Street Journal refers to cited the complexity of the procedure—including the difficulty of holding meetings with creditors spread around the world—as well as the lack of realistic rehabilitation plans for the Tokyo-based exchange as main reasons for this decision. It seems Mt. Gox took notice of this article fairly quick. They made a press release on their website only hours after the article came out.

“Information regarding the dismissal of the application for commencement of a civil rehabilitation procedure and the order for provisional administration

MtGox Co., Ltd., applied on February 28, 2014 for commencement of a civil rehabilitation procedure at the Tokyo District Court (Tokyo District Court 2014 (rehabilitation) no. 12, the “Civil Rehabilitation Procedure”). During the following 1 month and a half, an investigation has proceeded with regard to the past factual elements related to the disappearance of bitcoins and missing funds which were the cause of said application, but it is expected that said investigation will still require some time and at this time, there are no prospects for the restart of the business. Further, MtGox Co., Ltd. is continuing the negotiations with sponsor candidates but the concrete selection process has not yet started. Taking into account this situation and the fact that the drafting of a rehabilitation plan and its adoption or approval appear difficult, after consultation with the Court and the Supervisor on the continuation of the procedure, the Tokyo District Court decided today to dismiss the application for commencement of a civil rehabilitation and at the same time, an order for Provisional Administration was issued and Attorney-at-law Nobuaki Kobayashi (Supervisor and Examiner under the Civil Rehabilitation Procedure) was appointed Provisional Administrator.”

In March, CCN’s Caleb Chen reported on Mt. Gox’s civil rehabilitation procedure. The article pointed out what this procedure meant for Mt. Gox and its creditors. A quick recap of what this procedure meant:

“Mt. Gox is currently on step one of Civil Rehabilitation Proceedings.  Essentially, Civil Rehabilitation would call for all of Mt. Gox’s assets and liabilities to be counted as if a bankruptcy were occurring.  These proceedings try and get at a liquidation value.

A magic number will appear from this, that they will try and get creditors to swallow, of which they only require a majority.  Individuals with Bitcoin or fiat currently stuck in Mt. Gox would receive a percentage of their real original worth.  Seriously, don’t be surprised if Mt. Gox’s exchange rates are used in Mt. Gox’s calculations of how much the several hundreds of thousands of Bitcoin are “really worth.”

If this procedure were to be successful, it would mean Mt. Gox could stay in business and users who had any currencies left in the exchange would (probably) gain some of it back. For a while, it looked like this was working out. 200,000 Bitcoins were ‘magically’ found. As it turns out today, the outcome looks less bright. At least for the people that lost coins. For creditors in bankruptcy cases, a switch to liquidation usually means they will recoup less of their investment.

Finding a buyer

It all boils down to whether Mt. Gox can find a suitable buyer. If such a person is found, more assets could be recovered, and there still is a chance the exchange can resume over time. This depends on the court rulings of course, but it is possible. This all seems unlikely though, taking into consideration the company also released a FAQ to go with the press release. In this FAQ, a question about the business of the Bitcoin exchange was answered:

Q. What will be happen to the business of the bitcoin exchange operated by the Company?

A. It has not been decided yet, but after the bankruptcy proceedings commence, it will be unlikely that the Company can restart the exchange. The treatment of the exchange business is expected to be decided taking into consideration the various matters including whether there is any proper buyer candidate who can assume the business and how to transfer the business to such buyer.

A door is left open, but in cases like this, doors are always left open. In the end, nobody walks through them. The ending sentences in the press release should be clear enough for anyone to understand.

“The dismissal of the application for commencement of a civil rehabilitation procedure will create great inconvenience and concerns to our creditors for which we apologize. MtGox Co., Ltd. intends to fully cooperate with the Provisional Administrator including by handing over to the Provisional Administrator current negotiations with sponsor candidates to maximize the distribution to all creditors following a transfer of the business to a sponsor.”

There have been negotiations; none has been good enough thus far. The symbolic $1 bid we saw a few days ago, shows the severity of the problem. Nobody is willing to inject enough money in Mt. Gox. Enough money equals the amount needed for creditors to be happy. To be continued…