The Indian cryptocurrency industry has witnessed its share of challenges, from regulatory uncertainty to operational difficulties. The ongoing WazirX restructuring represents a landmark moment in the intersection of law and digital assets.
This article analyses the legal dynamics of the WazirX case, focusing on the Singapore High Court’s handling of creditor classification, procedural requirements and the pivotal role of creditor votes in determining the success of restructuring efforts.
The Singapore High Court's ruling sets critical legal precedents for corporate restructuring, creditor classification and the evolving legal treatment of cryptocurrency assets. It also underscores the judiciary's role in ensuring the equitable distribution of assets and the legitimising a proposed scheme.
WazirX, one of India's largest cryptocurrency exchanges, faced substantial losses following a cyberattack in July 2024 by the North Korean hacking group Lazarus, which led to the theft of $230 million in crypto. The governments of the United States, South Korea and Japan jointly attributed the attack to Lazarus. In response, WazirX filed for a scheme of arrangement with the Singapore High Court, proposing a method to redistribute the remaining assets to creditors, including platform users. This scheme, proposed under Section 210 of Singapore's Companies Act, serves as a statutory mechanism enabling financially distressed companies to restructure debts under the Court’s supervision.
The restructuring scheme proposed by WazirX aims to provide a structured recovery mechanism for creditors, particularly users. The scheme’s first distribution, expected in April 2025, will allocate Net Liquid Platform Assets (NLPA), rebalanced to match claims, to creditors in the form of cryptocurrency. This initial distribution is projected to recover 85% of user portfolios as of July 18, 2024, based on the NLPA's valuation of approximately $480.9 million as of January 17, 2025.
Creditors will receive recovery tokens (RTs) on a pro-rata basis, representing their share of claims. These RTs will be redeemable over a 36-month period, funded by future profits from WazirX’s operations, recoveries of stolen assets and liquidation of illiquid holdings. The scheme emphasises transparency, creditor involvement and equitable recovery, with the Singapore High Court overseeing procedural fairness and creditor voting to ensure the scheme’s viability.
If the scheme is implemented within the estimated timeframe, WazirX will have facilitated one of the fastest, fairest and most legally binding recovery and distribution processes in cryptocurrency history. With a structured recovery plan and transparency, the scheme ensures efficient asset distribution making voting in favour of the scheme a beneficial choice for WazirX users seeking resolution.
The Singapore High Court assessed the feasibility of WazirX’s restructuring plan, ensuring that it contained sufficient particulars before presentation to creditors. Legal standards mandate that restructuring schemes must outline a realistic recovery path to maintain judicial efficiency and avoid misleading creditors. Concerns regarding potential abuse of process were raised by some users who questioned WazirX’s intentions. The Court found no evidence of bad faith, citing the company’s efforts to investigate the cyberattack and implement a transparent asset distribution mechanism.
Financial disclosure is fundamental to any restructuring, and the Court accordingly requested WazirX’s provision of sufficient transparency, including a comparative analysis of the scheme versus liquidation. The Court was satisfied with WazirX’s commitment to furnishing audited financial information before the creditors’ meeting. It approved procedural modifications to facilitate broader participation in the voting process scheduled in the coming few weeks for the benefit of its creditors, many of whom are small cryptocurrency holders.
While WazirX's restructuring demonstrates a structured and court-approved recovery process, the ongoing liquidation of FTX following its 2022 collapse highlights the challenges and inefficiencies that can emerge in unregulated cryptocurrency markets. Once one of the world’s largest crypto exchanges, FTX filed for bankruptcy, initiating a protracted and costly liquidation process that has thus far provided little relief to its creditors. Since filing for bankruptcy, the liquidation of FTX has been plagued by inefficiencies, with nearly $950 million spent on legal and administrative fees alone. After all these years, the liquidation recovery will be paid in fiat as per the 2022 value, depriving the users of the current bull run. On the other hand, WazirX has resorted to providing 85% funds in tokens and recovery tokens as a way for users to participate in the exchange's future profits and asset recoveries.
The contrasting approaches to cryptocurrency insolvencies offer important regulatory lessons for India. The FTX debacle, which has left users facing significant delays and legal fees while recovering only a fraction of their assets, underscores the dangers of an unregulated cryptocurrency market. In contrast, WazirX’s restructuring, guided by the Singapore High Court, demonstrates the value of a transparent, legally governed framework in ensuring timely and equitable asset distribution.
For India, the key takeaway is clear: there is an urgent need to establish a robust regulatory and legal framework for the cryptocurrency sector. Such regulations should prioritise asset protection through proper custody rules, ensure clear mechanisms for court-supervised restructuring and institute strong oversight to prevent mismanagement. India needs to urgently protect users, enhance market stability and foster responsible innovation in the fast-evolving digital asset space.
Subhaprad Mohanty is an Assistant Legal Officer at IIT Bhubaneswar.