The Cryptopia Exchange Insolvency and the Importance of Data Assets

It will come as no surprise that the insolvency of a cryptocurrency exchange can lead to concerns about the recovery of assets (just think about the recent insolvency of the Canadian exchange, QuadrigaCX). The recent insolvency of Cryptopia Limited (“Cryptopia”), a New Zealand-based cryptocurrency exchange, is a good example of how these concerns can play out.  It demonstrates the importance of taking steps (both in advance of insolvency, and afterwards) to protect the assets of an insolvent exchange – in this case, to preserve data assets consisting of user account information held by a third party in another jurisdiction that the liquidator needed  to determine the owners/potential creditors of millions of cryptocurrency tokens held by the insolvent company.


Trading on Cryptopia started in 2014 and grew to roughly 300,000 accounts during the height of Bitcoin trading in 2017/2018. On January 15, 2019, Cryptopia experienced what it described on its official twitter account as a “security breach which resulted in significant losses[1]. Following the attack, Cryptopia suspended trading until March 2019. The investigation into the breach revealed that approximately $16 million worth of Ether and other ERC-20 tokens were stolen. None were recovered.

The New Zealand Proceedings and Enforcement in New York

On May 15, 2019, Grant Thornton New Zealand (“GTNZ”) was appointed as the liquidator of Cryptopia in proceedings in New Zealand. On the appointment date, all trading on the exchange was suspended and Cryptopia users were no longer able to withdraw any of their cryptocurrency or fiat assets. Given the complexities involved, GTNZ issued a press release and advised creditors of Cryptopia that its investigation into Cryptopia, and the potential return of their cryptocurrency assets, could take “months”.

Cryptopia’s information was stored and hosted on servers controlled by the Arizona-based web services firm Phoenix NAP, LLC (“PNAP”), including an SQL database containing all account holders’ individual holdings of cryptocurrencies and the account holder contact details. In light of the turmoil surrounding Cryptopia, PNAP terminated its service agreement with Cryptopia and refused to grant access to the information stored on its servers without the payment of approximately $2 million.[2]

GTNZ then filed a petition in the Bankruptcy Court in the Southern District of New York seeking recognition of the New Zealand liquidation in the USA in order to apply for urgent interim relief. GTNZ sought interim relief to preserve Cryptopia’s information stored and hosted on the PNAP servers. Without this data, the reconciling of individual holdings with the currencies held by Cryptopia would be impossible. In other words, the liquidator had an important data asset to protect.

GTNZ argued that failure to grant relief could result in PNAP overwriting or losing Cryptopia’s data, which would cause irreparable injury to Cryptopia’s account holders and the administration of the liquidation. 

On May 24, 2019, the Bankruptcy Court in the Southern District of New York issued an Order granting an emergency motion for provisional relief until June 7, 2019. Pursuant to the Order, the Court confirmed that the automatic stay provision under Title 11 of the United States Code would apply to the Cryptopia assets located in the United States  to permit the orderly administration and liquidation of Cryptopia’s assets, and to preserve those assets (including data assets) in the meantime.

The Court based its decision to preserve Cryptopia’s information partly on the basis that the relief requested would not cause undue hardship to any party in interest, namely PNAP, and any such hardship is outweighed by the benefits of the relief requested, namely to Cryptopia and its users.

Takeaways for Business

The New York enforcement proceedings highlights the global nature of cryptocurrency exchanges (and blockchain platforms more generally) and the need for liquidators and trustees to seek enforcement orders in other jurisdictions. Since blockchain has no borders, the type of enforcement order sought and obtained by GTNZ should not be unexpected. In fact, Ontario is no stranger to such enforcement proceedings – in 2014, an application was brought in the Ontario courts to recognize the Japanese bankruptcy proceedings that following Mt. Gox’s bankruptcy (in MtGox Co., Ltd (Re), 2014 ONSC 5811). More generally, in cases involving blockchain technology and cryptocurrencies, it is likely that numerous jurisdictional and cross-border enforcement issues will arise in any insolvency or litigation matter. It is helpful to consider these issues before they arise.

This case also demonstrates the importance of preserving and protecting information and data, particularly where the information and data is crucial to recovery by claimants in an insolvency proceeding (or customers more broadly). Data may also be an important asset in and of itself, even where it is not necessary to the recovery of other assets. Although the New York courts granted the relief that was necessary to protect the data in this case, it is worth considering these issue on the front end, and taking steps to protect  this data through  contracts with important service providers.


[2] Memorandum of Law in Support of Motion for Recognition and Emergency Motion for Provisional Relief, at page 2.

For more information about Denton’s data expertise and how we can help, please see our unique Dentons Data suite of data solutions for every business, including data mapping, contractual review, and consent benchmarking. Our Transformative Technologies and Data Strategy page has more information about our sophisticated tech practice, which focuses on data-driven technologies.

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Chloe Snider

About Chloe Snider

Chloe Snider is a partner in Dentons’ Litigation and Dispute Resolution and Transformative Technologies groups. Her practice focuses on litigating complex commercial disputes and assisting clients manage risk. She is a strategic and critical legal thinker who works efficiently to develop practical solutions for her clients.

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Julien Bourgeois

About Julien Bourgeois

Julien is a lawyer in Dentons’ Ottawa office and a member of the Firm’s Corporate group. In his practice, Julien advises technology and emerging growth companies on venture capital financings and private placements of debt and equity securities, as well as merger and acquisition transactions and corporate governance matters.

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