WazirX creditors quiz founder, legal team on restructuring

In a recent townhall meeting, creditors of WazirX pressed founder Nischal Shetty and the restructuring legal team for solutions, seeking representation on the committee of creditors (CoC) and expeditious restructuring within four months, and asked for clarity on redistribution of potential gains from future crypto market upswings.

This comes as the platform was granted a four-month moratorium by a Singapore court during which the company is expected to restructure its business with a temporary relief from legal proceedings.

“We have a moratorium for four months, we expect the process will take at least that long.

"We are doing everything to expedite it, and if it does take longer, we will need to extend the moratorium.

"However, we don’t expect to be extending it for a significantly longer time,” said George Gwee, director, restructuring, Kroll, the firm handling the legal process at WazirX.

Investors raised their concerns about losing out on a potential bull run in Bitcoin prices in the next six months.

“If there is a bull run, what about the four-to-six months of the period that you are taking for redistributing our assets and what about the upside?

"Will you be sharing that upside with us, or will that be locked to you, or you will be distributing its USD liability to us,” one of the investors asked.

Gwee responded, “For illustrative purposes… effectively if you want to receive distributions in Bitcoin, we will allocate a value equivalent of our liquid assets and hold it in Bitcoin so any price movement between that point and forward, you will get the benefit of it."

WazirX, which was among the major crypto exchanges in India, suffered a security breach in July, leading to the platform losing more than half of its digital assets valued at $230 million.

In September, the company said it was looking for a white knight to provide capital and pursue partnership and collaboration.

This would entail implementing revenue-generating products and mechanisms to share profit with users, tracing and recovering stolen crypto assets, and/or allowing users who need liquidity urgently to withdraw crypto assets more quickly and exit restructuring.

“Discussions around white knights are ongoing… We're going to work on a scheme where a lot more clarity will come around those aspects,” said Nischal Shetty, founder, WazirX.

Gwee indicated that there might be an update on the process in the next three months.

“There should be an understanding of how we can deliver value through operations, forensics and tracing.

"As you can imagine, there's a lot going on but we hope to get some very good news to you within the next two or three months,” he said.

Some creditors suggested that individual investors could chip in capital for the platform, which would enable it to restart operations and begin trading for users.

However, Shetty argued that the process might further add up to implementation challenges, including compliance and taxation, and that the company would instead focus on restructuring alone.

“There are quite a few implementation challenges.

"First is the idea, the time it takes.

"Are we completely certain that this will work? How long will it take to do this?

"The second is, if you were to do it, what are the challenges that will come in terms of compliance,” he said.

Others argued that at least one member of the 10-person CoC should be nominated by the users themselves.

In total, the platform has around 4.3 million creditors.

Last week, the firm initiated the process of establishing a 10-member CoC by October 9 to provide consultation on its restructuring procedures.

The creditors, who are users affected by the $230 million crypto theft, will be sorted based on the size of their claims, from smallest to largest. This list will be divided into 10 separate tranches, each representing 10 per cent of the total claims.

At present, the creditor base is skewed towards low-value claims, WazirX said.

Around 87 per cent of the users on the platform represent less than 8 per cent of the total claims by value.

In a blog post, the crypto exchange said that the sum of all the claims in these tranches amounts to $546.5 million.