WazirX files for 'breathing space' to restructure its liabilities following $230 million exploit

Zettai Pte Ltd, the Singapore holding company behind the Indian crypto exchange WazirX, has filed an application with the High Court of Singapore for a moratorium to restructure its liabilities following the platform’s $230 million exploit in July. 

The application was filed on Tuesday by Zettai Director Nischal Shetty under section 64 of the Insolvency, Restructuring and Dissolution Act 2018 to facilitate its intention to restructure its liabilities under a scheme of arrangement, according to a statement shared with The Block.

If approved, the moratorium would provide “breathing space” for the firm to progress with the restructuring to address users’ cryptocurrency balances on the platform and facilitate their recovery, Zettai said.

An automatic moratorium of 30 days commences following the application, though a hearing on whether or not to grant the moratorium, and its total duration, is yet to be scheduled with the Singapore Court.

Zettai also noted an ongoing dispute with Binance, subject to confidentiality obligations, adding that it planned to concurrently facilitate a solution for users as quickly and effectively as possible.

Four to six months estimated before withdrawals can reopen

Zettai anticipates that under a planned restructuring scheme, the impact of the exploit would be allocated pro-rata among users — ranking equally as unsecured creditors — receiving a share of available token assets in proportion to their share of all users’ unsecured claims for their account balances.

However, WazirX also accepted cryptocurrency deposits “from various Indian law enforcement agencies ('LEAs') under a special arrangement where the platform would hold these tokens on trust for the LEAs, and thus these LEAs have proprietary claims in respect of such token deposits,” Zettai noted.

Additional mechanisms are planned to increase the available assets, including “tracing and recovery of stolen tokens, the implementation of revenue-generating products and profit-sharing mechanisms, and potential opportunities for third-party partnerships,” the firm said.

Through such a scheme, a company can put forward a proposal to its creditors to restructure its debts and potentially deliver stronger recoveries to creditors than under an insolvent liquidation, Zettai claimed. If the scheme is approved by creditors and sanctioned by the Singapore Court, it would be legally binding on all relevant parties and enable Zettai to reopen cryptocurrency withdrawals in line with the terms of the scheme.

Zettai estimated it needed at least four to six months to consider the terms of the restructuring plan and work with the relevant stakeholders, claiming it is the “fastest route to allowing the reopening of cryptocurrency withdrawals.”

Zettai said that withdrawals could not be opened now due to the large number of assets stolen, and a restructuring scheme was “necessary to facilitate a legally binding, equitable and creditor-approved approach of distribution of token assets.”

“We understand that this is likely longer than what many users of the platform had hoped for, however this is also the most efficient and cost-effective process possible,” the firm said.

Zettai plans to hold a town hall event via video conference next week to explain the moratorium and the restructuring scheme and address users' questions.

WazirX’s $230 million exploit

WazirX suffered an exploit resulting in the unauthorized transfer of over $230 million worth of crypto assets on July 18.

The exploit targeted the exchange’s multisig wallet on the Ethereum network, potentially resulting from a private key compromise, and drained the funds. To carry out the attack, the perpetrator needed to upgrade the implementation of the Safe Wallet to a malicious contract, security firm Blocksec explained at the time.

The crypto exchange paused withdrawals on July 18 but only halted trading across its platform a few days later as it continued dealing with the exploit's fallout. 

WazirZ also offered up to 10% of the hacked funds to help recover the stolen tokens and up to $10,000 for information that leads to freezing the funds. However, evidence suggests North Korea’s Lazarus Group is the attacker, and assets are rarely recovered from the group’s hacks.

On July 27, WaxirX announced a "socialized loss strategy" through a social media poll but received significant backlash . 

Earlier this month, WazirX announced plans to undo all trades following its withdrawal freeze on July 18, reverting user balances to what they were before the exploit.

Last week, WazirX canceled all open orders and returned any INR and crypto assets reserved for the trades as part of “ongoing efforts to resolve the issue surrounding INR and crypto balances on the platform.”