In this update, we consider how trustees might go about identifying missing beneficiaries and then making distributions.
In Ruscoe v Cryptopia, the High Court determined that the $170 million of cryptocurrencies held by Cryptopia Limited (in liquidation) was held on trust for accountholders (see our previous update). The liquidators, acting as trustees, now face the task of reconciling 960,000 customer/beneficiary accounts across 500 different cryptocurrencies and distributing the value. Making that task harder is the lack of details about the beneficiaries.
Background
Following the judgment, the liquidators are trustees of 500 different trusts, as each type of cryptocurrency is held in an individual trust. This means that all accountholders that held, say, Bitcoin tokens, are beneficiaries of the effective "Cryptopia Bitcoin token Trust".
To identify accountholders, the liquidators have emailed them (where the liquidators had these details) and placed advertisements online. As at March 2021, they have only heard back from 57% (by value) of accountholders.
Accordingly, the liquidators may not have sufficient information for 43% (by value) of the accountholders to allow distributions. The liquidators could apply for court guidance under either statute or the court's inherent jurisdiction.
Court guidance
In the initial Cryptopia judgment, the High Court had suggested the liquidators may need to use s 76 of the Trustee Act 1956 if they cannot identify accountholders.
Statutory jurisdiction
Section 76 of the Trustee Act 1956 allowed the court to make an order for trustees to distribute trust assets where beneficiaries are "missing".[1] Such an order protects trustees from the risks of potential claims by those beneficiaries after the distribution. Section 76 required trustees to publish "advertisements … as are appropriate in the circumstances" to inform beneficiaries of their rights and how to come forward.
Section 76 of the Trustee Act 1956 was repealed by the new Trusts Act 2019 which came into force on 30 January 2021. Section 136 of the 2019 Act allows the court to make the same type of order as under s 76 if it is satisfied that "reasonable measures" have been taken to bring to the notice of potential beneficiaries their potential beneficial interest in the trust property.
The Law Commission intended the changes from s 76 to s 136 to modernise, broaden, shorten, and make more flexible the statute. Under s 76, the courts routinely required "advertisements" in newspapers. For example, the High Court in Re Estate of Snowsill ordered advertisements in the Saturday editions of four New Zealand newspapers despite extensive inquiries (including the use of a private investigator).[2]
By contrast, in one of the first cases applying the new section, Hodgson v Hodgson,[3] the High Court noted that social media searches should be undertaken (advertisements were also placed in newspapers in that case). The Court considered such searches would have a far greater likelihood of locating or learning the fate of the missing beneficiary, no matter where in the world they might be or have been, than mere newspaper advertisements.
As we transition from the 1956 Act to the 2019 Act, cases under s 76 will remain relevant but "reasonable measures" under s 136 will look beyond newspaper advertisements.
Inherent jurisdiction of the Court
Sitting alongside the legislation, the High Court retains an inherent jurisdiction for trust matters. A well-established example of the exercise of the courts' inherent jurisdiction in this area is the making of Re Benjamin orders. Those orders are closely comparable to the orders available under statute described above.
Of more potential relevance is the bespoke regime approved in the United Kingdom case Re MF Global UK Limited.[4] In that case, the administrators of MF Global UK Limited needed to distribute trust funds equating to approximately US$950 million to former clients of MF Global UK Limited. Following initial attempts to identify and communicate with those former clients, the Court approved a comprehensive framework for determining how to distribute the funds. The framework put the onus on former clients to make applications to the Court if they disagreed with the view ultimately reached by the administrators. That framework went beyond a mere Re Benjamin or s 76 / s 136 order and may be of relevance here.
Where to from here?
We will continue to watch with interest the liquidators' approach to the Cryptopia trusts. Whether the plain statutory process will suffice for the liquidators' task remains to be seen. A bespoke approach, under the court's inherent jurisdiction, may be needed to properly resolve this complicated case. This is especially so considering the $30 million of stolen cryptocurrency may mean trust assets are insufficient, and the broader liquidation context.
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[1] That is unable to be located, their existence established, or when it cannot be determined whether they are dead or alive.
[2] Re Estate of Snowsill [2021] NZHC 918 at [7] and [8].
[3] Hodgson v Hodgson (as beneficiaries in estate of Hodgson) [2021] NZHC 906 at [23].
[4] In re MF Global UK Limited (in special administration) (No 3) [2013] EWHC 1655, [2013] 1 WLR 3874.