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Hodlnaut Creditors Want Liquidation, Spurning Management’s Restructuring Solution

Hodlnaut Creditors Want Liquidation, Spurning Management’s Restructuring Solution

Hodlnaut, a crypto lending platform, has been under judicial management since August 2022. Due to the crypto winter, the platform went under, and it shielded itself from lawsuits and greater scrutiny from regulators by declaring insolvency and placing itself under judicial management. Despite its efforts to restructure and bring the platform back, fresh funding failed to materialize, leaving creditors with no hope in its resurrection.

Creditors Opt for Liquidation

Earlier this year, creditors expressed their lack of faith in Hodlnaut’s restructuring efforts, and a new document by advisors Ernst&Young confirms that any restructuring process is “unlikely to be achievable.” As a result, creditors holding the lion’s share of the claims – about 55.38% – voted in favor of total liquidation. The creditors preferring a restructuring solution only control 2.42% of the claims against Hodlnaut, a large part of which appear to be actually controlled by the company’s directors.

Hodlnaut’s management proposed a mediation plan to resolve the issue, but it was vehemently opposed by large creditors such as Samtrade Custodian and the Algorand Foundation, both of whom took a significant hit from the collapse of both 3AC and Hodlnaut. The proposal failed because no fresh injection of funds was available, and the court was not satisfied that a potential compromise and/or arrangement could be approved without it.

As a result, the courts have moved in favor of liquidation should circumstances remain unchanged. Counsel for Mr. Simon Eric Lee, the director of Hodlnaut, confirmed that no fresh injection of funds was available. In the circumstances, the Court held that it was not satisfied that a potential compromise and/or arrangement could be approved without a fresh injection of funds and thus directed that the IJMs are to proceed with filing a petition to wind up the Company with a concurrent application to discharge themselves as IJMs.

Conclusion

The collapse of Hodlnaut is a cautionary tale for companies investing in crypto assets. The volatility of the crypto market means that investments can quickly go sour, leaving companies with substantial losses. For Hodlnaut, the exposure to Terraform Labs proved to be the main culprit, and despite its best efforts to restructure and bring the platform back, fresh funding failed to materialize. The creditors’ preference for liquidation over restructuring seems inevitable, and it remains to be seen how the liquidation process will unfold for Hodlnaut.

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