Troubled lender Hodlnaut applies for creditor protection in Singapore

A digital asset company takes an excessive risk with its users’ funds. It gets ‘rekt’ and halts withdrawals. It then runs to the court for protection from its creditors. Sounds familiar? Well, it’s because it is. The latest to follow this path is Hodlnaut, a digital asset lender that has run to a Singaporean court seeking to secure breathing space to sort out its mess.

Hodlnaut announced on August 8 that it had paused withdrawals, an action that has become an ominous sign of impending doom for VASPs. In its announcement, it revealed that it was also halting deposits and token swaps, blaming “recent market conditions” for its predicament. 

Barely a week later, Hodlnaut has run to the courts for protection from its creditors.

“…as of 13 August 2022, Hodlnaut Pte Ltd filed an application with the Singapore High Court to be placed under judicial management,” this week’s announcement read.

The firm reasons that being placed under judicial management will protect it from being forced to sell its users’ digital assets at their “current depressed prices.” 

If the Singaporean court grants creditor protection to Hodlnaut, the company will be accorded a few months within which it can sort out its mess. During this time, it can determine how much money it owes its users and how much it currently has. If the two figures don’t match (and they won’t), it will explore various ways of raising money to meet the shortfall.

Digital currency companies running to the courts to seek creditor protection are becoming quite common, especially in Singapore. In the past month, two other VASPs have applied for, and been granted, protection after losing millions of dollars worth of investor funds.

The latest is Zipmex which was granted close to four months to sort its mess. Prior to that, Peter Thiel-backed Vauld lender was granted three-month protection after its bet on the collapsed Terra ecosystem tokens—UST and LUNA—led to its implosion.

Hodlnaut has proposed Tam Chee Chong, a former Deloitte Southeast Asia partner and the current director of Kairos Corporate Advisory, to become the interim judicial manager as the company awaits the court’s verdict.

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