Zettai Pte Ltd, the parent company of WazirX, applied to the Singapore High Court On August 27 for a moratorium under Section 64 of the Insolvency, Restructuring and Dissolution Act 2018.
This legal maneuver comes after WazirX’s major cyber attack on July 18, 2024, that resulted in the theft of approximately $230 million (₹2000 crore) worth of cryptocurrency assets.
What is a Moratorium? What Does it Mean for WazirX?
Simply put, a moratorium temporarily suspends an activity or law until future consideration warrants lifting the suspension.
WazirX made the latest strategic move to buy more time to facilitate restructuring the company’s liabilities through a scheme of arrangement.
The filing automatically triggers a 30-day moratorium, during which the Singapore court will carefully consider whether to grant the requested moratorium and determine its duration.
Just over a month before this legal action, the cyber attack primarily targeted Ethereum-based ERC-20 tokens stored in WazirX’s hot wallets.
In response to the security breach, WazirX suspended all withdrawals, effectively preventing users from accessing their funds.
While this immediate step is necessary from a security standpoint, this decision spread widespread concern and frustration among the platform’s extensive user base.
The moratorium sought by Zettai Pte Ltd serves a crucial purpose in the company’s recovery strategy.
It is designed to provide the beleaguered firm with essential “breathing space” to progress with its complex restructuring efforts.
The legal protection would effectively shield the company from potential creditor enforcement actions, such as winding-up proceedings and security enforcement.
In its official communication, WazirX said that this approach was the most efficient and pragmatic way to address users’ cryptocurrency balances on the platform and facilitate recovery for affected users.
The company has outlined its anticipation that under the planned restructuring, the impact of the cyberattack will be allocated pro-rata across users who rank equally as unsecured creditors.
This means that users would receive a share of available token assets associated with the platform proportionate to their share of all users’ unsecured claims for their account balances.
Restructuring Plan: Users Showed Disagreement
The proposed restructuring plan has far-reaching implications for WazirX’s user base. Under the scheme, users are classified as unsecured creditors with claims for the value of their token balances.
This classification is rooted in the platform’s terms of use, which establish the legal basis for each user’s unsecured claim associated with their account balances.
It’s worth noting that customers strongly opposed WazirX’s initial proposal to redistribute losses among affected and unaffected wallets on its trading platform.
The original plan would have resulted in a massive 45% cut to customer wallets, even for those whose tokens were not directly affected by the July 18 cyber breach.
In a notable development, rival crypto exchange CoinSwitch has filed a lawsuit against WazirX over funds stuck on the platform following the cyber attack.
CoinSwitch claims to have approximately $9.7 million (Rs 81 crore) worth of assets on WazirX, including Rs 12.4 crore in INR, Rs 28.7 crore in ERC-20 tokens, and Rs 39.9 crore in other tokens.
CoinSwitch has stated that despite regular attempts to contact WazirX since the incident, they have been unable to reach a satisfactory solution for retrieving the funds.
In response to the growing concern and need for clear communication, WazirX and its advisors have announced plans to hold a town hall via video conference in the week commencing September 2, 2024.
Although details are confidential, WazirX has also acknowledged an ongoing dispute with Binance. This adds another layer of complexity to the situation and may impact the restructuring process.
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