WazirX, a leading cryptocurrency exchange, has initiated legal proceedings in the Singapore High Court, seeking a six-month moratorium to halt any legal actions against the company as it navigates a significant restructuring process. This move comes in the wake of a devastating cyberattack that resulted in the theft of $234 million (₹2000 crore) in crypto assets, forcing the platform to take drastic measures to stabilize its operations.
Legal Battle Unfolds in Singapore
The moratorium application, filed by WazirX’s parent company, Zettai Pte Ltd, is being heard by Assistant Registrar Jacqueline Lee at the Supreme Court chamber of the Singapore High Court. The proceedings, which began at 12 PM IST, are accessible only to registered WazirX users via a private Zoom conference. The exchange is seeking this grace period to develop a comprehensive restructuring plan aimed at compensating its users in India who were affected by the recent hack.
In a Townhall meeting livestreamed on YouTube, WazirX co-founder Nischal Shetty addressed the exchange’s users, explaining the necessity of the moratorium and outlining the steps being taken to ensure a fair resolution.
Understanding the July Cyberattack
On July 18, 2024, WazirX experienced a major security breach targeting one of its ERC-20 multisignature cold wallets. The cyberattack resulted in the loss of $234 million in crypto assets, prompting the exchange to immediately halt all withdrawals and trading activities. This suspension, referred to as the “Withdrawal Freeze” and “Trading Freeze,” was a critical step in assessing the damage and preventing further losses.
Restructuring and Recovery Plan
To address the fallout from the cyberattack, WazirX has embarked on a restructuring plan under a Scheme of Arrangement in Singapore. This plan is designed to distribute the remaining crypto assets to users on a pro-rata basis, ensuring an equitable recovery process. The key elements of this restructuring effort include:
Engagement of a White Knight: WazirX aims to attract a capital partner to support recovery efforts and enhance the value of its tokens.
Revenue-Generating Products: The exchange plans to introduce new products and revenue-sharing mechanisms to generate income and share profits with its users.
Asset Recovery: WazirX is continuing its efforts to trace and recover the stolen crypto assets.
Legal Costs: To fund its legal defense during the moratorium process, WazirX has allocated Rs 100 crore from user funds.
The restructuring process, expected to span at least six months, is not indicative of insolvency or bankruptcy. Instead, it represents a structured approach to resolving financial challenges and offering users a path to recovery. Under this plan, WazirX users are classified as contingent unsecured creditors, meaning their claims on the platform’s assets depend on the outcome of ongoing disputes.
The Importance of the Moratorium
WazirX’s request for a moratorium is crucial to its restructuring efforts. An automatic 30-day moratorium was granted on August 27, 2024, providing the exchange with temporary relief from legal actions. This period is intended to give WazirX the necessary time to finalize its restructuring proposal. The court will decide on whether to extend the moratorium by September 26, 2024.
User Support Amidst Ongoing Challenges
Despite the challenges, WazirX has managed to reopen INR withdrawals as of August 26, 2024. Users can currently withdraw up to 33% of their INR balances, with an additional 33% accessible from September 3, 2024. This partial restoration of liquidity aims to provide users with some financial relief while the exchange continues to address the more complex crypto-related issues.
Conclusion
WazirX’s ongoing efforts to recover from the cyberattack and navigate the legal complexities underscore the challenges faced by cryptocurrency exchanges in the evolving digital landscape. As the situation unfolds, users and stakeholders alike will be closely monitoring the outcome of the Singapore High Court proceedings and the subsequent restructuring plan.
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