Hodlnaut Fails to HODL On: Company Fires 80% of Staff, Facing Police Probe, Halts Withdrawals & Seeking Judicial Management

If you’ve kept up with cryptocurrency news, you would have heard of yet another crypto lending platform that has landed itself in hot water.

Hodlnaut, a Singapore-based cryptocurrency lender and borrower, has suspended withdrawals, swaps and deposits since 8 August 2022.

And as of 13 August 2022, Hodlnaut has filed an application with the Singapore High Court to be placed under judicial management.

Just today (19 August 2022), the company provided an update on its website, providing more details about the judicial management process.

The company also revealed that they have let go of 80% of its workforce and that proceedings were ongoing involving the Singapore Attorney-General and the Singapore Police Force.

This comes after a series of bad news from other Crypto players such as Three Arrows Capital, Celsius and Terraform Labs (Anchor Protocol).

So here’s what happened and what it means for users of Hodlnaut.

TL;DR: Hodlnaut Suspends Withdrawals & Seeks Judicial Management

• Hodlnaut has suspended withdrawals, swaps and deposits since 8 August 2022 and has withdrawn its digital payment token (DPT) services license application 
• As of 13 August 2022, they have filed an application with the Singapore High Court to be placed under judicial management
• Just today (19 August 2022), providing more details about its judicial management application
• Options to allow Holdnaut users to withdraw their holdings are also being explored
• The company also revealed that they have let go of 80% of its workforce and that are ongoing proceedings with the Singapore Attorney-General and the Singapore Police Force.

Disclaimer: The information provided by Seedly serves as an educational piece and does not constitute an offer or solicitation to buy or sell any investment product(s). It does not consider the specific investment objectives, financial situation or particular needs of any person. ​Readers should always do their own due diligence and consider their financial goals before investing in any investment product(s).

What Happened To Hodlnaut?

For the uninitiated, Hodlnaut has announced that they have suspended withdrawals, swaps and deposits since 8 August 2022 and has withdrawn its digital payment token (DPT) services license.

The company has also locked most of its communication channels save for its Telegram group and main website.

As of 13 August 2022, Hodlnaut has filed an application with the Singapore High Court to be placed under judicial management.

The company attributed its dire financial state to:

• Losses suffered by its 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. 

In other words, Hodlnaut users now do not have access to their funds and will have to wait until Hodlnaut sorts out its financial matters.

In addition, the company admitted that there ‘are pending proceedings between Hodlnaut and the Singapore Attorney-General / Singapore Police Force.’ But, the company added that it could not reveal any information about these proceedings and reassured us that ‘these actions are taken in what we believe to be in the best interests of our users.’

One more thing.

Since Hodlnaut halted withdrawals, the company laid off about 80% of its employees (~40 employees) to reduce its expenditure. The current team that remains at Hodlnaut was determined to be necessary for the company to carry out key functions and remain operational.

What is Judicial Management?

If you were wondering, here’s what Judicial Management (via Hodlnaut):

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 Singapore Court (the “Judicial Manager”) is appointed in place of the company’s directors to manage the company.

One effect of applying for judicial management with the Singapore Court is that there is a moratorium (or temporary pause) against legal claims and proceedings against the Hodlnaut. This pause will provide us with the breathing space to focus our efforts on the recovery plan and rehabilitation.

In other words, Hodlnaut is trying to retreat into a locked room to sort things out with a new person in charge. This way, Hodlnaut can focus on setting things right without external interference.

As the process of obtaining a judicial management order from the Singapore Court may take up to a few months, Hodlnaut has appointed Mr Tam Chee Chong as the Interim Judicial Manager to manage the company during this period.

According to the company, Mr Tam has “over 37 years of corporate and financial advisory experience and has worked in various Big 4 accounting firms over the years. He has taken on the role of Judicial Manager in various companies which underwent restructuring”.

The company also explained that its decision to apply for judicial management was made in a last-ditch attempt to prevent liquidations of its Bitcoin (BTC) and Ether (ETH) holdings.

To stabilise its liquidity further, the company will move to reduce its burn rate by reducing all open-term interest rates to 0% APR from next Monday (22 August 2022).

FYI: According to Investopedia, The burn rate is typically used to describe the rate at which a new company is spending its venture capital to finance overhead before generating positive cash flow from operations. It is a measure of negative cash flow. The burn rate is usually quoted in terms of cash spent per month.

What Does This Mean For Users?

For those who have opted for the Nexus Mutual Custody Cover insurance, you can expect compensation of your funds should withdrawals be halted for over 90 days.

As there is no timeframe for when withdrawals will be resumed, Hodlnaut users will have to wait indefinitely for their funds to be available for withdrawal (interest will still be paid as per normal).

By opting for judicial management, the company hopes to execute its recovery plan and ‘potentially rehabilitate the company.’

As part of the recovery plan, the company hopes to restore its asset to debt ratio to 1:1, which may allow users to withdraw their initial cryptocurrency deposits.

The company is also exploring the option of allowing users to withdraw their initial deposit, with interest accrued in full, at a discounted amount and close their account with Hodlnaut. 

But, since the company is currently applying for Judicial management, any such withdrawals will be subject to the approval of the soon-to-be-appointed judicial manager.

The Future

Hodlnaut is currently working on a recovery plan with its legal advisors.

The company’s legal representatives have attended the first Case Conference for its Interim Judicial Management application on Thursday, 18 August 2022.

At this Case Conference, the Singapore Court has directed that subject to the Court’s availability, Hodlnaut’s application to be placed under Interim Judicial Management will tentatively be heard next Monday, 22 August 2022 at 2:30pm (GMT+8).

Here is a breakdown of the whole process according to Hodlnaut:

1. Hodlnaut Pte Ltd’s Interim Judicial Management application will be heard in the Singapore Courts. As mentioned above, this hearing is tentatively fixed for next Monday, 22 August 2022, at 2:30pm (GMT+8).
2. Assuming we are successful, the Singapore Court will appoint an Interim Judicial Manager. 
3. Once appointed, the Interim Judicial Manager will step into the place of the Directors of Hodlnaut Pte Ltd and decide how the company should be run.
4. The Interim Judicial Manager may then evaluate and propose a recovery plan to Hodlnaut Pte Ltd’s creditors to be voted on.
5. In the meantime, Hodlnaut Pte Ltd’s Judicial Management application will also be running in parallel. The following case conference for the Judicial Management application has been fixed for hearing on 30 August 2022 at 10:00am (GMT+8). 
6. Hodlnaut Pte Ltd’s Judicial Management application will be heard in the Singapore Courts. Assuming we are successful, the Singapore Court will appoint Hodlnaut Pte Ltd’s Judicial Manager.

In addition, Hodlnaut users may request a copy of the Judicial Management application and relevant accompanying affidavit. Please login to Hodlnaut’s webapp and go to https://app.hodlnaut.com/fileshare, where you can request to download these documents. After a request is submitted, the user will receive the relevant document(s) via email.

However, I believe that things still look bleak for Hodlnaut. 

If things do go south, the Monetary Authority of Singapore (MAS) will not be able to help you out in recovering your funds.

If you happen to be one of those with your life savings in Hodlnaut, remember that this is not the end and that money is not all there is to life.

Money can always be earned back; the most important thing here is learning from your mistakes.

If you require, here are some resources to help out:

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