A Long Bitter Crypto Winter: Implications for Insolvency and Restructuring

This crypto winter has outlived previous bitter seasons, bringing down with it a number of exchanges, lending and borrowing platforms and crypto-based projects. The increased uptake of cryptocurrencies via institutional and retail participation has made the domino effects particularly acute. The spectacular rise and downfall of crypto businesses has led to wild swings in value of the hundreds of billions. The collapse of cryptocurrency Luna (and related ‘stablecoin’ TerraUSD) and the debacle at FTX are said to have contributed to the distress or demise of other crypto firms including Voyager Digital, Celsius, BlockFi and Genesis, all of which went into insolvency or restructuring.

Ripple effects are also felt in Singapore, where institutional and retail participation in cryptocurrencies remains high. In the wake of the meltdown at least four crypto-related restructurings have hit the Singapore courts. The Zipmex group of companies, which operates a cryptocurrency exchange platform in Singapore, Thailand, Indonesia, Australia applied for a moratorium after having more than $50 million in exposure to Celsius and Babel Finance. The group is reportedly considering proposals for capital injection during the moratorium. Hodlnaut, a crypto lending platform, with approximately US$500m assets under management before declaring distress filed for judicial management in August 2022. DEFI Payments, a unit of asset backed crypto lending platform Vauld, was granted a 3-month extension for its moratorium in August 2022. The liquidators of Three Arrows Capital also applied for recognition of the BVI insolvency proceedings in Singapore. We consider notable issues arising from these Singapore proceedings which are of relevance to both creditors, debtors and insolvency professionals with interest in crypto-related insolvency / restructuring.

Establishing substantial connection to Singapore to restructure here

Crypto exchanges and lending platforms may operate in corporate groups, with companies set up in different jurisdictions in order to cater to varying regulatory requirements. Different entities in the group may hold the rights to intellectual property or have control of the crypto wallets. “Homing” a restructuring in Singapore has the practical advantage of bringing a group of companies scattered across jurisdictions under one banner of protection offered by Singapore’s progressive restructuring regime (although we note that there may be practical difficulties with enforcing protections offered by restructuring in Singapore in some jurisdictions: see our article from November 2022).

The Singapore High Court recently considered an application for restructuring by a multi-jurisdiction crypto group in Re Zipmex Co Ltd [2022] SGHC 196. Re Zipmex involved among other things, applications by the Australian, Indonesian and Thai companies in the Zipmex group for a moratorium pending the proposal of a scheme of arrangement by invoking the extra-territorial powers of s 64 of the the Insolvency, Restructuring and Dissolution Act (“IRDA”). The moratorium under s 64 of the IRDA extends to restraining acts committed against the applicant companies even outside of Singapore.

In order to obtain a moratorium, the companies had to establish a ‘substantial connection’ to Singapore (s 63 read with s 246(1) of the IRDA), and one way of doing so was to show that Singapore was the ‘centre of main commercial interest’ (COMI) of the companies. The court found this to have been established by virtue of the consolidation of the on-exchange assets of the group in a hot wallet which was hosted by the holding company in Singapore (even if not all creditors may have been aware of this consolidation). Further, there were many users from Thailand that subscribed to Singapore’s ZipUp+ facility, following which their cryptoassets were deposited in the “Z Wallet”; and these assets were at the disposal of the Zipmex group’s Singapore subsidiary as it saw fit. It was also relevant that the direction and control for the companies came from Singapore, although the court also noted that this factor would be stronger where the location of the management was more readily apparent to creditors and other observers.

The court also considered that if a company is carrying out activities of some permanence in Singapore, that would be an independent factor for establishing a ‘substantial connection’ to Singapore. The holding of a large proportion of assets in Singapore, coupled with the management being concentrated in Singapore would independently have established substantial connection on the facts as well.

Creditor engagement in restructuring

A further point of significance arising from Re Zipmex is the paramount importance of creditor engagement with timely communications to assist creditors in understanding what is happening and giving them a voice in the process. The Zipmex companies had sought a five-month extension, but the court raised concerns about the group’s insufficient engagement with creditors (particularly customers in Thailand) and granted only a three-month extension, with the possibility of a further extension later (which was granted in December 2022).

The court in terms noted that an applicant cannot excuse its limited creditor engagement by pointing to large numbers of creditors. Since the applicant would have had the benefit of a large customer base, it cannot seek to hide behind numbers when things came to grief. The judgment set out ways in which an applicant should engage with its creditors – adding that an applicant should “seriously consider” these modes and “be prepared to answer to the court why a particular form of engagement is not being used”:

  • The use of townhalls: At a minimum, facilities should be provided for dissemination of information, translations of documents where feasible, together with an explanation of the restructuring process and timelines.
  • The establishment of a creditor committee to give voice to the creditors, with consideration given to the framework of selection and representation.
  • The appointment of independent legal and financial advisers to protect creditors’ interests, with their remuneration provided for. The court considered that “at the very least” the appointment of a financial adviser would be helpful.

Appointment of interim judicial manager

As noted, Hodlnaut applied for a judicial management in August. Hodlnaut also sought to apply an interim judicial manager (“IJM”) while the judicial management application was pending. While no creditor objected to the appointment of an IJM, a contingent creditor, Samtrade Custodial Limited (“Samtrade”), proposed a different candidate as the IJM. The court therefore had to decide the IJM candidate, and in doing so considered the following factors (Re Hodlnaut Pte Ltd [2022] SGHC 209).

  • Significant weight should be given to the choice made by the largest group of creditors, although on the facts there were disputes here as to which creditor was entitled to that status.
  • The court was mindful of the fact that other creditors may have doubts about perceived independence of the IJM appointed by either Hodlnaut or Samtrade, as the IJM would have to rule on the status of the creditor. In the circumstances, it was best to appoint someone who avoids concerns about independence, especially since a large number of unsecured creditors was involved.
  • This is not to say that any nominee by company / creditor would be rejected out of hand. It would be a fact-sensitive exercise.
  • The fact that the company’s nominee may have had some briefings could not be significant as such briefings are likely only to be of a preliminary nature and thus not likely to confer much greater familiarity or efficiency.


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