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Hodlnaut liquidation to proceed after Singapore lender fails restructure bid

Following a rough patch with creditors and Singaporean authorities over the last year, the High Court of Singapore has issued a Winding Up Order against Hodlnaut, appointing Ernst & Young Global Limited (EY) advisors Aaron Loh Cheng Lee and Ee Meng Yen Angela as its joint liquidators.

The order will see Hodlnaut’s digital assets liquidated, which means there is a slim chance of users recovering their deposits.

Plans for the liquidation were contained in a document published by auditing firm EY confirming the stance of Lee and Ee, who were appointed as Hodlnaut’s interim judicial managers (IJMs) on August 29, 2022, before being discharged from their positions following last week’s development. The winding-up proceedings are set to commence in line with the Insolvency, Restructuring, and Dissolution Act of 2018.

The former IJMs said they would update parties of proceeding via EY’s website and email.

“The company has a substantial volume of creditors (including over 17,000 platform users), and as such, responding to all creditor queries individually may not be practicable or economical,” read the document. “The Liquidators will instead consolidate their answers to creditor queries within their updates to all potential creditors.”

Hodlnaut ran into dire straits following exposures to large-scale digital asset activities in 2022. The lending company lost over $189 million following the collapse of Anchor Protocol, the decentralized finance (DeFi) platform for the algorithmic stablecoin TerraUSD (UST).

FTX’s implosion in late 2022 sealed Hodlnaut’s fate as it lost $13 million in the embattled digital currency exchange, starting a frantic battle for survival.

Previous attempts at liquidation were met with resistance by Hodlnaut as the company pushed for a restructuring plan. However, the company’s creditors favored liquidation, stating it “will maximize the company’s remaining assets available for distribution.”

After halting withdrawals following the implosions, Hodlnaut sought judicial management to eliminate the prospect of a forced liquidation. To remain afloat, the company laid off 80% of its workforce, saying that the retained staff are “necessary headcount in order for us to carry out key functions.”

Singapore’s cleaning act

Following the jarring collapses of digital currency firms, affecting thousands of Singaporean investors, regulators swooped in to sanitize the sector. The first order for the country’s authorities was to roll out new measures to protect investors, including a requirement for service providers to hold customer funds in statutory trusts.

“While the segregation and custody requirements will minimize the risk of loss of customers’ assets, consumers may still face significant delay in recovering their assets in the event of insolvency of the service providers,” warned the Monetary Authority of Singapore (MAS). “Consumers must also remain vigilant and not deal with unregulated entities, including those based overseas, as they risk losing all their assets.”

As a deterrent, the MAS announced a nine-year capital market ban on the founders of the defunct digital currency hedge fund Three Arrows Capital (3AC) for breaching existing investor protection rules.

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