On August 8, Hodlnaut announced that it has halted withdrawals, token swaps and deposits with immediate effect due to the recent challenging “market conditions”.
It has also informed the Monetary Authority of Singapore (MAS) to withdraw its licence application. This means that it will no longer provide regulated digital payment token (DPT) services.
The following week on August 16, it shared that the team, including the founders, is working on a feasible recovery plan as they stabilise the company’s financial situation.
We are aiming to avoid a forced liquidation of our assets as it is a suboptimal solution that will require us to sell our users’ cryptocurrencies such as BTC, ETH and WBTC at these current depressed asset prices. Instead, we believe that undergoing judicial management would provide the best chance of recovery.
– Hodlnaut in a company statement
Therefore, the company has filed an application with the Singapore High Court on August 13 to be placed under judicial management in light of Hodlnaut Group’s financial health. This application will tentatively be heard on August 22.
Judicial management is a mechanism under Singapore law for companies under financial distress to rehabilitate their business. In this process, an independent officer of the Court is appointed in place of the company’s directors to manage the company (also known as a Judicial Manager).
This Judicial Manager (or Interim Judicial Manager) will review all of Hodlnaut’s accounts and activities, and have the ultimate decision-making power on all aspects of the company moving forward as well as help present a recovery plan to its creditors.
In addition, the judicial management application provides a moratorium (or temporary pause) against legal claims and proceedings against Hodlnaut.
“This pause will provide us with the breathing space to focus our efforts on the recovery plan to rehabilitate the company,” added Hodlnaut.
How will this affect users?
In the latest company statement released today (August 19), Hodlnaut said that its present financial circumstances are a result of several combined factors.
These include “losses suffered by Hodlnaut’s Hong Kong subsidiary during the TerraUSD crash, unusually high volumes of withdrawals, the overall decline in cryptocurrency prices from their 2021 highs, and issues relating to certain user(s) who have deposited substantial amounts of cryptocurrency with Hodlnaut.”
It also clarified that Celsius has neither borrowed nor lent to Hodlnaut. Whilst Hodlnaut has an account with Celsius, Hodlnaut has not deposited any assets with Celsius.
While Hodlnaut is facing a difficult financial situation at the moment, it assured that not all of their users’ assets are gone. All withdrawals remain halted until further notice (this decision will lie in the hands of its Judicial Manager once appointed), but it will look at available solutions that will allow users to tap into “emergency exit liquidity”, subject to discussions and approvals by various stakeholders.
The company further expressed that it strongly believes that judicial management is the best option moving forward.
First, it would avoid liquidation of Hodlnaut’s holdings of BTC and ETH at today’s depressed prices (which have fallen greatly from their 2021 all-time highs). In the event of a liquidation, all assets of the company are sold first, and then distributed to our users equally in proportion to their holdings. What this would mean is that all users (whether you have deposited BTC, ETH or stablecoins) would likely only get back a fraction of what was initially deposited.
Second, judicial management provides Hodlnaut with the opportunity to execute its recovery plan and rehabilitate the company. The plan is aimed at restoring our asset to debt ratio to at least one and eventually allowing users to withdraw the full value of their cryptocurrency deposited with Hodlnaut. If the Interim Judicial Manager, and subsequently the Judicial Manager, is appointed, he will step into the place of Hodlnaut’s management and make decisions on behalf and in the best interest of our users.
– Hodlnaut in a company statement
What’s next for Hodlnaut?
“In order to further stabilise our liquidity, we will be taking steps to reduce our burn rates,” said Holdnaut, adding that they will therefore be charging all open term interest rates to 0% APR from August 22, 5pm.
Since it halted withdrawals, Hodlnaut shared that it has also laid off 80 per cent of its employees (approximately 40 people) in an effort to reduce the company’s expenditure.
The remaining employees whom they have retained, are deemed as “necessary headcount” in order for them to carry out key functions.
“Our next update will likely be on 23 August 2022 after our Interim Judicial Management application hearing [next Monday],” said Hodlnaut.
Featured Image Credit: Hodlnaut