Any bitcoin withdrawn from the crypto scam in the six months prior to liquidation must be paid back, say liquidators. But there’s some good news too. From Moneyweb.
There’s good news and bad news for investors in the failed bitcoin scam Mirror Trading International (MTI).
First the bad news: any investor who withdrew bitcoin, whether all or part of the initial investment, within six months of the liquidation of MTI will have to pay it back. If you don’t have the bitcoin, you will be asked to repay the monetary equivalent of the bitcoin withdrawn, but at today’s prices.
This week, Moneyweb reported on the case of MTI member Ben Janse van Vuuren, who invested R20 000 in the scheme in July 2020 and, suspecting he may be involved in a scam, asked for his money back. He received about R21 000 in October 2020, just months before MTI’s collapse in December that same year. He clearly thought he’d dodged a bullet.
In December, Janse van Vuuren was informed that he had to repay the roughly 0.13 bitcoin he withdrew in 2020, but at today’s price of R97 000. We wrote to the MTI liquidators to ask what was going on, as this seemed terribly unfair. MTI initially implied that though Janse van Vuuren would have to repay the bitcoin (or its rand equivalent), he would be allowed to lodge a claim against the MTI estate for the initial deposit, at its then value of R20 000 – not the current value of R97 000.
Now for the good news
MTI liquidators subsequently clarified that while Janse van Vuuren would be required to return the 0.13 bitcoin or its current rand equivalent of R97 000, he will be entitled to lodge a claim for the full R97 000 against the estate – and not the R20 000 previously reported.
“It is important to note that the aforesaid claim against the estate is a concurrent claim, which means that Mr Janse van Vuuren will receive a pro rata dividend in respect of his claim, calculated as a percentage of his claim in relation to the claims of all investors who had proved claims against MTI,” says Herman Bester, one of the MTI liquidators.
This does not mean that Janse van Vuuren will automatically receive his R97 000 back as his claims will be pooled with thousands of other concurrent claims against the estate. They will receive a pro rata share of whatever is left in the pot once expenses incurred in the liquidation process have been paid.
Bester explains that the liquidators are empowered by sections 26 and 32 of the Insolvency Act to demand repayment of any withdrawals from MTI as it was last year declared an unlawful Ponzi scheme in the Western Cape High Court. That means that any agreements between the company and investors were void from the outset.
Therefore, any withdrawals from MTI are considered ‘dispositions without value’ in terms of the Insolvency Act and must be repaid.
This also means that any investor required to return capital in terms of Section 29 of the Insolvency Act is entitled to put in a claim for any capital loss suffered.
“The effect of Section 29 of the Insolvency Act is often viewed by innocent investors as extremely harsh and unreasonable,” says Bester.
“However, it is important to keep in mind that the reason why these claims were created in the Insolvency Act, is based on fairness by restoring equity amongst the investors who lost their capital invested in MTI and did not withdraw their capital in the last six months before MTI’s liquidation and those investors who fortunately made a withdrawal within six months before liquidation.”
Bester says investors who are required to return what they received will obviously view this remedy as extremely unfair, but those who made no withdrawal and lost everything “will most definitely agree that it is only fair” that the applicable withdrawals be returned and shared on a pro rata basis among all investors who lost their initial investments.
“This is precisely what Section 29 of the Insolvency Act aims to achieve.”
If the asset was a car rather than bitcoin …
Bester explains the concept by way of a vehicle that is transferred out of an insolvent company which is then placed in liquidation. The liquidators will only be entitled to recover the vehicle. If the investor is no longer in a position to return the vehicle, then the liquidators will be entitled to recover the value of the vehicle – at the higher value at either the date it was transferred to the investor, or the date the court makes the order.
In the case of a vehicle, which generally loses its value over time, the highest value will typically be the value of the car at the time was transferred to the investor, and not the later date when the court makes the order, as the value of the car would obviously have declined over time.
In the case of MTI, bitcoin withdrawn has appreciated more than four-fold since the liquidation, which means investors may be hard-pressed to find the money to repay the estate.
A dissenting view
A lawyer representing an MTI investor responded to the Moneyweb article this week and contested the idea that withdrawals from the scheme constituted dispositions without value (which must therefore be repaid).
“To my knowledge, there is not yet a decided case where a court held that these investments were dispositions in terms of the Insolvency Act,” says the lawyer.
“Of course it is important for the liquidators to deal with these claims as dispositions, otherwise all of the claims would have prescribed already. It seems that they might be jumping the gun at the moment.
“It is also of great concern that the liquidators attempt to claim amounts far higher than any amount ever invested by an investor.”
Several MTI investors have raised the issue of prescription, where debts expire provided the prescription has not been interrupted. This is dealt with in the Prescription Act, and means most debts “prescribe” or expire within three years unless, for example, the debt is acknowledged by the debtor, or a summons is issued by the creditor.
MTI was placed in provisional liquidation in December 2020, so the prescription period should have ended in December 2023.
Bester says it’s not quite so simple, as the law establishes the start of the prescription period as the date when MTI became aware of the debt.
This being the case, MTI’s prescription period will only end in June or July 2024, marking the end of the three-year period after the liquidators had sufficient time to delve into the finances of the company.