Cryptocurrency Catastrophe: Legal Battles Across Borders

Bester v Mirror Trading International (Pty) Ltd (in Liq) [2023] FCA 1194

On 6 October 2023, the Hicks Oakley Chessell Williams insolvency team successfully obtained orders in the Federal Court of Australia for recognition of proceedings from the High Court of South Africa relating to the liquidation of Mirror Trading International (Pty) Ltd (MTI).

Prior to its liquidation, MTI operated a so-called cryptocurrency trading platform, promising investors an automated cryptocurrency trading service that would provide its investors with significant returns. The scheme enticed hundreds of thousands of people from 140 countries in the world. Members of the public invested significant amounts in the bitcoin venture with the promise of high returns, regrettably, there was no such automated trading service.

On 26 April 2023, it was declared by the High Court of South Africa that MTI operated an illegal Ponzi-type scheme whereby early investors in the scheme were funded by later investment monies. When the scheme collapsed, a significant number of investors were left at a loss.

The appointed liquidators of MTI have begun their investigations and are now leading a world-wide operation to recover assets for its creditors in countries such as, the United States of America, Canada, United Kingdom, Australia, and many others. 

The application for recognition was made in accordance with Article 17 of the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law (Model Law), and section 6 of the Cross-Border Insolvency Act 2008 (Cth).  

As mentioned in the reasons for judgment by Justice Button, who presided over the matter:

• Consideration needed to be placed on whether the proceeding being recognised was a “foreign main proceeding”, or a “foreign non-main proceeding” pursuant to Article 17(2) of the Model Law. A “foreign main proceeding” is defined as one whereby the proceeding took place in the State where the debtor has the centre of its main interests, and in comparison, a “foreign non-main proceeding” is one whereby the proceeding took place in a State whereby the debtor has an “establishment”, being any place of operations where the debtor carries out a non-transitory economic activity with people and goods or services.
• Consideration needed to be placed where the application was made by a “foreign representative” pursuant to Article 15(1) of the Model Law. With “foreign representative” as defined in Article 2 to mean “a person or body, including one appointed on an interim basis, authorised in a foreign proceeding to administer the reorganisation or the liquidation of the debtor’s assets or affairs or to act as a representative of the foreign proceeding”.
• Consideration of any known assets that are within the Australian jurisdiction.

After thorough consideration, Justice Button leaned towards granting the recognition order. He expressed that it was appropriate for the South African liquidators to be empowered to handle Australian assets in the liquidation process, ensuring the best outcome for MTI’s creditors.

More recently, the Hicks Oakley Chessell Williams insolvency team achieved another victory. They secured orders under section 588FF(3)(b) of the Australian Corporations Act 2001 (Cth) (the Corporations Act), extending the timeframe for pursuing potential voidable transaction claims by an additional year under section 588FF of the Corporations Act. For further information please see Bester, in the matter of Mirror Trading (Pty) Ltd (in Liquidation) [2024] FCA 305.

Bankruptcy Office of the Canton of Geneva (Trustee) v Amoma SÀRL (In Liquidation), in the matter of Amoma SÀRL (No 2) [2023] FCA 1379

The Federal Court of Australia determined an application for recognition of a foreign insolvency proceeding by the Bankruptcy Office of Geneva.

The Bankruptcy Office of Geneva was appointed as trustee of the insolvent estate of a reservation platform known as Amoma SARL (Amoma) when it was placed into liquidation on 28 October 2019.

The application was brought to the Federal Court of Australia so that the foreign representative of Amoma could pursue a potential claim against Trivago, a popular hotel booking platform and Amoma’s former business counterparty. Amoma advertised hotel rooms on the online platform operated by Trivago, and the claim appears to be brought following the January 2020 decision by the Federal Court of Australia that Trivago made false and misleading representations under the Australian Consumer Law.

Amoma sought the following orders from the Federal Court:

1. that the Amoma proceeding be recognised as a foreign proceeding under Articles 15 and 17 of the Model Law; and
2. to be granted powers under Article 21 of the Model Law, including:

• power to examine witnesses and take evidence; and
• all powers available to liquidators or administrators under the provisions of the Corporations Act.

Similarly to the principles considered by Justice Button in the decision for MTI, the Federal Court took into consideration and was satisfied that:

• The foreign proceeding falls within the definition of a foreign proceeding under Article 2(a) of the Model Law. It involves a legal process in a foreign state under insolvency laws, where the assets and affairs of the debtor are overseen by a foreign court.
• That the foreign representative was one that falls within the definition of a foreign representative under Article 2(d) of the Model Law.
• That the Amoma proceeding was a “foreign main proceeding” under the Model Law, as Switzerland was the location for both the foreign proceeding and Amoma’s centre of main interests.

In a landmark decision, Justice McEvoy supported Amoma’s application, granting the foreign representative powers equivalent to those of an Australian liquidator.

This case represents a milestone in cross-border insolvency within Australia, where no physical assets are involved but rather the pursuit of a potential claim.

For further insights or assistance, please reach out to our experienced insolvency team on 03 9629 7411. 

Disclaimer: The content provided in this publication is intended for general informational purposes only and should not be construed as tailored advice to address specific individual or organisational circumstances. While we strive to offer accurate and up-to-date information, we cannot guarantee its accuracy at the time of receipt or its continued accuracy in the future. Readers are encouraged to seek professional advice or consult relevant authorities regarding their unique situations.