Creditor Driven Winding Up
Within the Vauld community, misleading and false information has been put forth regarding what is involved in a Winding Up event—aka liquidation—of a Singapore company. In particular there has been FUD (fear, uncertainty, doubt) spread as it pertains to the prospect of liquidating the insolvent company Defi Payments Pte Ltd. What follows are the facts as it pertains to a creditor-driven Winding Up of Defi Payments Pte Ltd.
Note: Points made here have been corroborated with restructuring and insolvency experts including lawyers, Big 4 firm Licensed Insolvency Practitioners (ie liquidators), and more. For those who have their doubts regarding the validity of this information, do your own research and contact reputable sources in Singapore yourself. Information on Winding Up a Singapore company per the Insolvency, Restructuring and Dissolution Act 2018 may be found here.
NO FIRE SALE – Nothing about a Winding Up in this case has anything to do with a “fire sale.” The whole concept of a “fire sale” is not applicable here as the only thing which needs to occur is to 1) Recover and to 2) Return creditor assets. The only company assets that would be sold pertain to physical items such as equipment and furniture which represent a minuscule portion of assets and as such the way in which they are disposed is immaterial.
Note: Points made here have been corroborated with restructuring and insolvency experts including lawyers, Big 4 firm Licensed Insolvency Practitioners (ie liquidators), and more. For those who have their doubts regarding the validity of this information, do your own research and contact reputable sources in Singapore yourself. Information on Winding Up a Singapore company per the Insolvency, Restructuring and Dissolution Act 2018 may be found here.
NO FIRE SALE – Nothing about a Winding Up in this case has anything to do with a “fire sale.” The whole concept of a “fire sale” is not applicable here as the only thing which needs to occur is to 1) Recover and to 2) Return creditor assets. The only company assets that would be sold pertain to physical items such as equipment and furniture which represent a minuscule portion of assets and as such the way in which they are disposed is immaterial.
What are the Issues with the Proposed Managed Wind Down (MWD) option?
Vauld/Kroll remain in control in a MWD which is not desirable given their performance to date. Vauld/Kroll can delay and drain assets as long as they want. They can conceal and fail to disclose important information to creditors claiming the information request is “not relevant” as they have done in the past. Creditors remain blind to the inner workings of Vauld. Creditors have to go to the court to get information from Vauld. There is no transparency with this approach. Creditors are completely at the mercy of Vauld/Kroll.
The MWD proposal does not better serve creditors toward their primary objectives which are to Recover and Distribute assets back to creditors. That can all be done more effectively via a Creditor-Driven Winding Up as will be demonstrated. In short, a MWD offers no material advantage to creditors while exposing it to ongoing risks with Vauld/Kroll remaining in control. The only ones who really benefit from a MWD are Vauld and Kroll.
Kroll and Vauld lawyers stand to be the primary beneficiaries of $10 million USD reserved for costs toward the successful completion of a restructuring arrangement they have managed. The majority of Vauld creditors do not believe Kroll and Vauld’s lawyers deserve this “reward” given their performance in the Vauld restructuring.
While a MWD can be pursued via a scheme of arrangement voted on by creditors, that whole process introduces an unnecessary layer of costs and time when the ultimate goal is simply to wrap-up the company which can otherwise more efficiently be implemented via a creditor driven liquidation process. Would an RDA plus MWD be beneficial to Vauld creditors?
An RDA (Reverse Dutch Auction) may appear to present a way in which some creditors can “get out” sooner by taking a larger haircut than if they stayed on board for the duration of future asset distributions upon counter party paybacks. However, what is missed in the discussion of an RDA is the huge anticipated costs for managing this whole process which the latest proposals from Vauld/Kroll state would occur multiple times over the history of future loan paybacks. Each time an RDA event is called will require considerable resources to implement and manage both in terms of technology and administration. That is one reason why the restructuring cost estimates from Vauld/Kroll of $10M are astronomically high. These are all unnecessary costs. Has there really been a sufficient cost/benefit analysis performed with this proposed arrangement?
While a MWD can be pursued via a scheme of arrangement voted on by creditors, that whole process introduces an unnecessary layer of costs and time when the ultimate goal is simply to wrap-up the company which can otherwise more efficiently be implemented via a creditor driven liquidation process. Would an RDA plus MWD be beneficial to Vauld creditors?
An RDA (Reverse Dutch Auction) may appear to present a way in which some creditors can “get out” sooner by taking a larger haircut than if they stayed on board for the duration of future asset distributions upon counter party paybacks. However, what is missed in the discussion of an RDA is the huge anticipated costs for managing this whole process which the latest proposals from Vauld/Kroll state would occur multiple times over the history of future loan paybacks. Each time an RDA event is called will require considerable resources to implement and manage both in terms of technology and administration. That is one reason why the restructuring cost estimates from Vauld/Kroll of $10M are astronomically high. These are all unnecessary costs. Has there really been a sufficient cost/benefit analysis performed with this proposed arrangement?
How Would a Creditor-Driven Winding Up (WU) Work and Why is that a Better Option for Creditors versus a MWD?
The WU process is independent of the company. Creditors have an important and powerful role through the entire process via a creditor appointed Committee Of Inspection (COI).
A WU can be the quickest way to eject management and their advisors and for creditors to assume immediate control. This step also does not require a formal scheme of arrangement to be proposed and as such saves on costs and time from application thru implementation.
The liquidator would be court appointed based on nominations by creditors. Since winding up is a creditor-driven process (per law), the judge is likely to rule in favor of a creditor appointed liquidator and reject any motion by the company for an alternative liquidator nominee selection. A creditor nominated liquidator unopposed by the company is the best outcome with the least expensive and quickest route toward Winding Up the company.
The WU process is definitely less expensive than an IJM/JM approach as the IJM approach introduces an extra layer of expenses that are unnecessary if the end-goal is to eventually wind up the company. IJM/JM is only an applicable approach if there was an opportunity to restructure the company to continue its operations. That is not applicable with Defi Payments as Vauld is insolvent, is mismanaged, and is not and has not been profitable. Accordingly, a credit driven WU represents the only sensible option.
Winding Up is the quickest way to bring the Vauld debacle to conclusion. IJM/JM and MWD would delay the process due to likely ongoing court battles between creditors and Vauld. Going immediately to WU is the fastest way to conclude this ordeal.
Creditors in Control – Creditors remain in control of the liquidation process thru the COI and its role in directing the liquidator. Creditors may further reduce the costs by having creditor-driven teams assist the liquidator with certain administrative routines such as collecting claim amounts across 150k plus claimants, implementing voting procedures, assisting with forensic accounting, and reviewing the agreements in which the company has entered. Creditors can also assist with providing systems for storing and publishing information to creditors at large (for example via VauldCreditors.net) to further reduce liquidator operational costs. In short, creditors working with the COI can assist to support the liquidator and thereby dramatically reduce liquidation costs while allowing the whole process to proceed as quickly as possible. Many Vauld creditors have already demonstrated a willingness to help with the process (both in terms of legal and other forms of support), as such, a team of skilled and knowledgable creditors could be immediately available to assist the liquidator get up-to-speed and progress thru completion of his/her tasks.
Costs for Liquidation – The exact costs for a creditor driven Winding Up are unknown but qualified individuals who are aware of the projected “$10M” Vauld/Kroll is reserving for “restructuring” consider that number to be astronomically too high. Further, Vauld/Kroll's projected $40M price tag for a winding up "liquidation" is just plain ridiculous and out of touch with reality. As creditors have been denied delivery from Vauld on numerous requests for information, it is impossible to project how many skeletons are potentially in the closet at Vauld and as such it is impossible to reliably project at this point the costs for creditors to drive the Winding Up process. However, given that creditors are far more motivated to save on costs than Vauld and Kroll, and that creditors thru the COI can closely monitor costs, and that independent experts disagree with the Vauld/Kroll $10M and $40M cost numbers, it only stands to reason that a creditor-driven Winding Up would cost substantially less than any restructuring option presented by Vauld/Kroll. All this having been said, the legal costs to apply for a creditor driven liquidation could range from $19,000 to $26,000 plus $7900 for regulator fees (all USD) based upon receipt of proposal from a qualified Singapore based law firm with expertise in cases pertaining to insolvent companies.
The WU process is independent of the company. Creditors have an important and powerful role through the entire process via a creditor appointed Committee Of Inspection (COI).
A WU can be the quickest way to eject management and their advisors and for creditors to assume immediate control. This step also does not require a formal scheme of arrangement to be proposed and as such saves on costs and time from application thru implementation.
The liquidator would be court appointed based on nominations by creditors. Since winding up is a creditor-driven process (per law), the judge is likely to rule in favor of a creditor appointed liquidator and reject any motion by the company for an alternative liquidator nominee selection. A creditor nominated liquidator unopposed by the company is the best outcome with the least expensive and quickest route toward Winding Up the company.
The WU process is definitely less expensive than an IJM/JM approach as the IJM approach introduces an extra layer of expenses that are unnecessary if the end-goal is to eventually wind up the company. IJM/JM is only an applicable approach if there was an opportunity to restructure the company to continue its operations. That is not applicable with Defi Payments as Vauld is insolvent, is mismanaged, and is not and has not been profitable. Accordingly, a credit driven WU represents the only sensible option.
Winding Up is the quickest way to bring the Vauld debacle to conclusion. IJM/JM and MWD would delay the process due to likely ongoing court battles between creditors and Vauld. Going immediately to WU is the fastest way to conclude this ordeal.
Creditors in Control – Creditors remain in control of the liquidation process thru the COI and its role in directing the liquidator. Creditors may further reduce the costs by having creditor-driven teams assist the liquidator with certain administrative routines such as collecting claim amounts across 150k plus claimants, implementing voting procedures, assisting with forensic accounting, and reviewing the agreements in which the company has entered. Creditors can also assist with providing systems for storing and publishing information to creditors at large (for example via VauldCreditors.net) to further reduce liquidator operational costs. In short, creditors working with the COI can assist to support the liquidator and thereby dramatically reduce liquidation costs while allowing the whole process to proceed as quickly as possible. Many Vauld creditors have already demonstrated a willingness to help with the process (both in terms of legal and other forms of support), as such, a team of skilled and knowledgable creditors could be immediately available to assist the liquidator get up-to-speed and progress thru completion of his/her tasks.
Costs for Liquidation – The exact costs for a creditor driven Winding Up are unknown but qualified individuals who are aware of the projected “$10M” Vauld/Kroll is reserving for “restructuring” consider that number to be astronomically too high. Further, Vauld/Kroll's projected $40M price tag for a winding up "liquidation" is just plain ridiculous and out of touch with reality. As creditors have been denied delivery from Vauld on numerous requests for information, it is impossible to project how many skeletons are potentially in the closet at Vauld and as such it is impossible to reliably project at this point the costs for creditors to drive the Winding Up process. However, given that creditors are far more motivated to save on costs than Vauld and Kroll, and that creditors thru the COI can closely monitor costs, and that independent experts disagree with the Vauld/Kroll $10M and $40M cost numbers, it only stands to reason that a creditor-driven Winding Up would cost substantially less than any restructuring option presented by Vauld/Kroll. All this having been said, the legal costs to apply for a creditor driven liquidation could range from $19,000 to $26,000 plus $7900 for regulator fees (all USD) based upon receipt of proposal from a qualified Singapore based law firm with expertise in cases pertaining to insolvent companies.
What are the Steps and Timeline for Applying for and Implementing a Winding Up Process?
Reject Moratorium Extension – Have creditor appointed legal representation submit an affidavit to the court and attend an anticipated court hearing regarding another moratorium extension to reject an extension.
Apply for Winding Up – Immediately upon, and not prior to, the expiration of the current moratorium, any creditor with a claim over $15,000 SGD may submit an application with the court for Winding Up Defi Payments Pte Ltd. In the event of multiple claimants who participate in the application, they are collectively referred to as co-plaintiffs. However, most law firms prefer to limit the number of co-plaintiffs to ease administration of the process. It is important to note that while the co-plaintiffs assume the risks and costs associated with legal fees, the benefit of this action is for all Vauld creditors.
Court Hearing on Winding Up Application – Within 3-4 weeks from filing of the Winding Up application, a court hearing should take place. If the motion is unopposed, the judge will issue an order for liquidation and appoint a liquidator based on creditor nominated candidates.
Liquidator Assumes Control of thec Company – Immediately upon the judge's order, the liquidator assumes control of the company. S/he enters the company offices and assumes control of all documents and equipment. The former Vauld CEO will be compelled to cooperate by handing over all information, including keys to the crypto assets. The liquidator is bound by legal responsibilities to make decisions in the best interests of creditors and must demonstrate this to the court and the COI via reports. The liquidator can immediately fire all employees except essential personnel whose knowledge and services are required to support the tasks of the liquidator.
COI – Creditors vote to appoint creditors who will serve on the Committee of Inspection (COI). The COI will work with and direct the liquidator on all matters of material significance.
Financial and Agreements Review – The liquidator and COI will review the company’s financial accounting records and all agreements entered into by the company.
Communications – The COI may—and should—require the liquidator communicate regularly with creditors providing status updates via frequent AMA session or other forms of communication. The COI or liquidator may set up its own resources for sharing information with creditors or leverage existing resources such as provided at VauldCreditors.net for same, all in an effort to reduce costs.
Recovery of Assets – The liquidator retrieves current recoverable assets and remains engaged to receive future available assets until such time that a determination is made that no further assets can be recovered.
Creditors Submit Claims – Singapore requires creditors submit a claim else they will not receive their assets. The liquidator, working with the COI, will need to establish an efficient system for handling the 150,000 plus creditors and their claims to reduce administrative overhead costs. Volunteers from the creditor community with sufficient knowledge in Web database technology my be recruited to assist in this effort, again to reduce the overhead costs otherwise assessed by the liquidator.
Distribution of Assets to Creditors – As assets are available for distribution and after a creditor approved calculation of their known and/or projected value is determined—while following the requirement to treat all creditors equally and fairly—the liquidator will distribute assets to creditors based on creditor submitted and reviewed claims. This distribution schedule of assets may occur in various phases as follows. Phase 1: Immediate distribute of available assets. Phase 2: Subsequent and ongoing distribution of assets as they become available based on counter party loan paybacks. Creditors may include with their claims the amounts they have fronted toward legal fees associated with their claim.
Reject Moratorium Extension – Have creditor appointed legal representation submit an affidavit to the court and attend an anticipated court hearing regarding another moratorium extension to reject an extension.
Apply for Winding Up – Immediately upon, and not prior to, the expiration of the current moratorium, any creditor with a claim over $15,000 SGD may submit an application with the court for Winding Up Defi Payments Pte Ltd. In the event of multiple claimants who participate in the application, they are collectively referred to as co-plaintiffs. However, most law firms prefer to limit the number of co-plaintiffs to ease administration of the process. It is important to note that while the co-plaintiffs assume the risks and costs associated with legal fees, the benefit of this action is for all Vauld creditors.
Court Hearing on Winding Up Application – Within 3-4 weeks from filing of the Winding Up application, a court hearing should take place. If the motion is unopposed, the judge will issue an order for liquidation and appoint a liquidator based on creditor nominated candidates.
Liquidator Assumes Control of thec Company – Immediately upon the judge's order, the liquidator assumes control of the company. S/he enters the company offices and assumes control of all documents and equipment. The former Vauld CEO will be compelled to cooperate by handing over all information, including keys to the crypto assets. The liquidator is bound by legal responsibilities to make decisions in the best interests of creditors and must demonstrate this to the court and the COI via reports. The liquidator can immediately fire all employees except essential personnel whose knowledge and services are required to support the tasks of the liquidator.
COI – Creditors vote to appoint creditors who will serve on the Committee of Inspection (COI). The COI will work with and direct the liquidator on all matters of material significance.
Financial and Agreements Review – The liquidator and COI will review the company’s financial accounting records and all agreements entered into by the company.
Communications – The COI may—and should—require the liquidator communicate regularly with creditors providing status updates via frequent AMA session or other forms of communication. The COI or liquidator may set up its own resources for sharing information with creditors or leverage existing resources such as provided at VauldCreditors.net for same, all in an effort to reduce costs.
Recovery of Assets – The liquidator retrieves current recoverable assets and remains engaged to receive future available assets until such time that a determination is made that no further assets can be recovered.
Creditors Submit Claims – Singapore requires creditors submit a claim else they will not receive their assets. The liquidator, working with the COI, will need to establish an efficient system for handling the 150,000 plus creditors and their claims to reduce administrative overhead costs. Volunteers from the creditor community with sufficient knowledge in Web database technology my be recruited to assist in this effort, again to reduce the overhead costs otherwise assessed by the liquidator.
Distribution of Assets to Creditors – As assets are available for distribution and after a creditor approved calculation of their known and/or projected value is determined—while following the requirement to treat all creditors equally and fairly—the liquidator will distribute assets to creditors based on creditor submitted and reviewed claims. This distribution schedule of assets may occur in various phases as follows. Phase 1: Immediate distribute of available assets. Phase 2: Subsequent and ongoing distribution of assets as they become available based on counter party loan paybacks. Creditors may include with their claims the amounts they have fronted toward legal fees associated with their claim.
Excessive Kroll/Lawyer Restructure Costs
The following document shows a $10M reserve Vauld/Kroll proposed for restructuring costs. These fees primarily get paid to Vauld’s lawyers and Kroll.
The following document shows a $10M reserve Vauld/Kroll proposed for restructuring costs. These fees primarily get paid to Vauld’s lawyers and Kroll.
Legal Expert Opinion
The following shows an excerpt from a Singapore based legal expert on corporate insolvency.
Legal Costs To Apply for Winding Up
The following shows proposed legal costs to reject a moratorium extension and to file for a creditor driven winding up of Def Payments. The total legal costs range from a low of SGD 25,000 ($19,000 USD) to a high of SGD 35,000 ($26,600 USD). Further, there is a required SGD 10,400 ($7900 USD) fee for Singapore’s insolvency regulator.
Note: Some of the information referenced herein is based on information leaked at https://we.tl/t-t2pmnt6ZRr that was evidently provided to the CoC by Vauld/Kroll in a meeting on January 31, 2023 which was found via posts on various Vauld Telegram groups. These public documents have been placed on the CoC page.