We wish to update all users of the WazirX Platform that Zettai Pte Ltd (“Zettai”) has taken the next step in its efforts to address users’ cryptocurrency balances on the Platform following the cyberattack and theft of crypto tokens from the Platform on 18 July 2024, and has on 27 August 2024 filed an application with the High Court of Singapore (HC/OA 861/2024) for a moratorium under section 64 of the Insolvency, Restructuring and Dissolution Act 2018 to facilitate its intention to restructure its liabilities under a scheme of arrangement (“Scheme”). Copies of the application, as well as the affidavit in support thereof, have been provided via email to users of the Platform.

Moratorium

A moratorium provides breathing space while Zettai progresses with a restructuring, which represents the most efficient way to address users’ cryptocurrency balances on the Platform and facilitate recovery for users. An automatic moratorium of 30 days arises from the filing of the application (i.e., 27 August 2024), and the Singapore Court will determine whether to grant the moratorium sought at a hearing of the application (and the duration of the moratorium, if so granted). The hearing date has not yet been scheduled, and we will update you when we receive more information from the Singapore Court. 

As users would note, there is an ongoing dispute between Zettai and Binance. As this dispute is subject to confidentiality obligations, please note that we may not be able to disclose certain information relating to the dispute. Nonetheless, while this dispute remains ongoing, Zettai has taken the initiative to concurrently facilitate a solution for users of the Platform as contingent unsecured creditors of Zettai as quickly and effectively as possible. 

Restructuring under a Scheme

We anticipate that under a planned restructuring, the impact from the cyberattack will be allocated pro-rata across users who rank equally with each other as unsecured creditors, and users will receive a share of available token assets associated with the Platform proportionate to their share of all users’ unsecured claims for their account balances. 

This would be accompanied by mechanisms to increase these token recoveries, such as tracing and recovery of stolen tokens, the implementation of revenue-generating products and profit-sharing mechanisms, and potential opportunities for third-party partnerships, all of which will benefit users.

A Scheme will allow tokens to be distributed to users of the Platform in a fair, legally binding and creditor-approved way in a quick and efficient manner. 

A Scheme, if approved by the creditors and sanctioned by the Singapore Court, would be legally binding on all relevant parties, including Zettai. It is envisioned that Zettai will need at least 6 months to consider the terms of the restructuring plan and work with the relevant stakeholders. During this period, we will endeavour to provide timely updates as well as receive feedback from its creditors and stakeholders.  

If restructuring is not favored, resolving crypto balances through alternative routes could involve undefined risks and timelines. A restructuring may offer a more flexible and tailored approach compared to other potential options.

We understand that this is likely longer than what some users of the Platform had hoped for, however, this is also the most efficient and cost-effective process possible. 

Request for support of the moratorium

We have made an application for a moratorium so as to provide the team with time and space to pursue this restructuring. We are all working towards the same goal of achieving an acceptable outcome for users of the Platform in light of the circumstances and we trust that you would agree that it is in your interests to support this moratorium and the restructuring.  

Townhall

We and our advisors will be holding a town hall via video conference in the week commencing 2 September 2024 to explain the key features of a moratorium and a Scheme and address user questions. Zettai is advised by Kroll Pte Ltd as financial advisors, Rajah & Tann Singapore LLP as legal advisors in Singapore, and Nishith Desai Associates as legal advisors in India.

Further details in respect of this townhall will be provided in the coming days, and users will be given the opportunity to submit questions in advance of the townhall.

FAQs

To read the following Frequently Asked Questions and their answers in Hindi, click here.

Disclaimer: The multilingual content is a translation of the original content in English and we disclaim any responsiblity for any discrepencies or differences in the content or accuracy of this translation from English. The original content in English shall be the authentic version and supersedes any other versions.

September 17, 2024

Q: What is a Trust Arrangement?

A: In a trust arrangement, trust assets are held separately from other non-trust assets. Trust assets can be identified as belonging to a specific holder. Unlike in a trust, general users of the platform do not hold any specific token assets.  Aside from a number of cryptocurrency token deposits held on trust for various law enforcement agencies, the liabilities owed to the users are unsecured liabilities, which broadly reflect the users’ account balances on the platform. 

Q: What is an Unsecured Claim?

A: General users of the platform do not hold any specific token assets. General users have a claim for the value of their token deposits on the platform. If the platform undergoes restructuring or liquidation, all users’ claims are treated equally, with available assets distributed proportionally.

Q: How the Restructuring works?

A: In a potential restructuring, the value of Zettai’s assets, including tokens such as Bitcoin, Ethereum, and others, are consolidated, and any recovery is shared equitably among all unsecured creditors. We will continue to seek advice from our financial advisors as well as input from the creditors on the most beneficial way forward. 

Q: What if a Restructuring Fails?

A: Users will have to wait for the dispute with Binance to be resolved. Only after this dispute is resolved can there be clarity over the ownership of the Platform and its cryptocurrency tokens (which Zettai now holds albeit under protest after Binance relinquished control of these tokens). We are not able to disclose how long this confidential process will take. 

Depending on the outcome of the dispute, as well as other factors including the financial position of Zettai, one possible outcome if there is no viable restructuring plan approved by the creditors and the Court is that Zettai may be placed in liquidation.

Important point:

Whether through restructuring or liquidation, users are unsecured creditors who are treated equally. No unsecured creditor is given preferential treatment, and all distributions are made based on the same proportional recovery.

We do encourage you to read the affidavits filed in the moratorium proceedings before the Singapore Court, which we have shared with you via email on September 10th 2024.

Rest assured, the restructuring plan is designed to maximize recovery quickly in a fair, transparent, and equal manner to all users.

September 13, 2024

Q: What happens if the moratorium is not granted?

A: If the moratorium is not granted, the chances of successful restructuring decrease significantly. Users may have to wait until the dispute with Binance is resolved, as Zettai holds the cryptocurrency tokens under protest. In such a scenario, it would be only after the dispute with Binance is resolved that the Platform’s users might have some clarity over who owns the Platform and its cryptocurrency tokens. It is not clear how long this process would take.

A scheme of arrangement provides an avenue for the Platform’s users to more quickly receive a distribution from the Platform’s assets in proportion to the share of their claims associated with their cryptocurrency balances. The Platform’s users could potentially receive distributions more quickly even if a white knight does not ultimately come in to inject liquidity. Regardless of the outcome of the dispute with Binance, users would have an unsecured claim against either Binance or Zettai, depending on the ownership ruling. If Binance is deemed the owner, it becomes liable for users’ account balances. If Zettai is confirmed as the owner, it holds that liability instead.

September 12, 2024

Q: Do all 4.28M of the unsecured contingent creditors need to vote in the scheme voting process?

A: While it’s important for as many creditors as possible to vote, the scheme can be approved based on the votes of those who participate. For the scheme to succeed, it requires support from more than 50% of voting creditors by number and at least 75% of the total value of funds represented by those voting.

Example: If 250,000 users, representing $300M in total value of unsecured liabilities, participate in the vote, the scheme passes if more than 125,000 creditors with a combined value exceeding $225M vote in approval of the scheme.

All creditors are encouraged to vote to ensure their voices are represented in the decision-making process.

September 06, 2024

Q: Why is there a discrepancy between the BTC holdings stated in the affidavit and those held in the wallets?

A: Some users have reached out regarding an alleged discrepancy on whether the WazirX Bitcoin wallet indeed holds 1,475 Bitcoins. This figure is correct. 337 Bitcoins (approximately US$18m) are held on trust for various law enforcement agencies. Therefore, the affidavit’s figure of 1,138 Bitcoins represents only the unsecured liabilities in Bitcoin owing to the users of the Platform.

September 05, 2024

Q: What is the rationale behind the moratorium application to the High Court of Singapore, and what specific relief is being sought?

A: Zettai is applying for the moratorium so that it will have the breathing space to develop a solution for crypto balances. The moratorium will give Zettai time to negotiate with potential investors, which will improve user recoveries. 

Zettai is broadly seeking the following reliefs in its moratorium application: (1) an order that no resolution shall be passed for a winding up of Zettai; (2) an order that no proceeding shall be commenced or continued against Zettai, except with the leave of the Court and subject to such terms as the Court imposes; (3) an order that no execution, distress or other legal process may be commenced against any property of Zettai, except with the leave of the Court and subject to such terms as the Court imposes. These reliefs are protective in nature, and will allow Zettai to focus its efforts on finding a solution for the Platform’s users.

Q: Will Zettai prioritize a few creditors over the others?

A: No, all Platform users with crypto balances will be contingent unsecured creditors ranked equally with each other and will be treated equally.

Q: Why should users bear the legal costs associated with the cyberattack and restructuring process?

A: The costs associated with the restructuring broadly comprise operational costs of the WazirX Platform, costs of the restructuring and other legal proceedings, and costs associated with investigative tracing work to recover stolen assets.

Operational costs are required to keep the WazirX Platform live to facilitate an efficient Scheme voting process and subsequent distributions, and for use as a live platform to improve user recoveries via revenue-generating products under a proposed restructuring.

The legal costs associated with the restructuring and legal proceedings are important to ensure that any restructuring will be legally binding and can be implemented in an orderly manner. There are also legal costs for ongoing legal proceedings which Zettai continues to pursue. 

These costs have to be funded from the assets of Zettai. Zettai is actively working with potential white knights for rescue financing which may be applied to defray costs.

Q: Why is the case being handled in Singapore, not India?

A: Zettai PTE Ltd (“Zettai”) is a company registered on 7 January 2019 under the laws of Singapore. In  November 2019, Zettai delivered control of all cryptocurrency wallets and crypto tokens to Binance.  Ownership and control over the Platform were also transferred to Binance. However, after Binance publicly announced its decision to cease providing services to the Platform, which would severely and negatively impact our creditors, Zettai was forced to receive the transfer of the crypto balances from  Binance under protest. Further, the same is reflected in the Platform’s Terms of Use / User Agreement which provides that the crypto operations are owned and serviced by Binance. Zanmai Labs, our  Indian entity, manages and looks after the INR component on WazirX and does not have any role in the crypto operations. Since the hack has resulted in the theft and loss of crypto tokens, Zettai is the entity that is directly affected, and therefore, the proceedings are being carried out in Singapore.

Q: When can we expect trading in cryptos to resume?

A: After a restructuring proposal in the form of a Scheme is approved by creditors and sanctioned by the High Court of Singapore, Zettai will be able to re-open cryptocurrency withdrawals in line with the terms of the Scheme which will take at least 6 months.

Trading will not be re-enabled before a successful restructuring and Scheme.

Q: What is the plan for compensating users who lost funds due to the attack? 

A: WazirX is actively pursuing a solution to return token assets to crypto users (which will allow improvements to recoveries from any increase in market prices) and to improve user recoveries via tracing and recovery of stolen tokens, implementation of revenue-generating products (and sharing of profits), and rescue financing from and / or collaborations with potential white knights.

Q: What is the expected timeline for the restructuring process and the resolution of the moratorium application? Why is a 6-month duration necessary, and can it be shortened to 1 or 3 months?

A: The expected timeline is at least 6 months due to the significant amount of work needed to develop a restructuring plan with the relevant stakeholders and have it fairly assessed and voted on by creditors, followed by a sanction by the Court (which is subject to statutory timelines and Court timetables).

Q: Will an increase in crypto asset values or prices help WazirX’s financial position?

A: Increase in prices will increase the crypto assets held relative to liabilities, however, token recoveries are uncertain as assets are presently out of balance with liabilities in token terms which can only be understood following a rebalancing. Zettai intends to carry out a rebalancing shortly following internal assessment and consultation with creditors.

Q: Is it possible to recover more than 100% ?

A: At this stage it is unlikely that token recoveries will exceed 100%, however as distributions are expected to be in tokens under a restructuring, fiat recoveries on distributed tokens under a Scheme may exceed 100% if the crypto price of underlying token assets increases.

Q: How will liabilities be treated in the restructuring, and will creditors be able to share in the upside from increases in token price?

A: The restructuring plan aims to crystallize crypto liabilities into a USD value as at 18 Jul 24, of which each creditor will have a share of such liabilities pro-rata to the value of their claims.

The remaining crypto assets will be rebalanced to ensure token denomination alignment against the liabilities, and creditors will be given the opportunity to choose which tokens to have market exposure to.

These remaining crypto assets will be distributed in tokens, which means any pricing movements will be borne by creditors when they receive these token distributions.

Any improvements to recoveries from recovered stolen assets, profit sharing and collaborations / rescue financing will similarly be rebalanced and distributed in tokens.

All of the above mean that creditors will be able to share in any upside from increases in token price of underlying token assets that are distributed.

Q: Why are only cryptocurrency balances being restructured? Why are INR balances not also being restructured?

The cyberattack impacted only the crypto assets. Crypto balances are being restructured as the cyberattack resulted in insufficient cryptocurrency token assets being available to meet liabilities owing to crypto users of the Platform – Zettai is proactively stepping forward to propose a restructuring to deliver a legally binding solution for users’ crypto balances for the benefit of users. 

Conversely, INR balances were not affected in the cyberattack and thus do not need to be restructured.

Q: Since the user did not sign any TnCs with Zettai, why are we conducting the procedure in Singapore and not in India? Is the NCLT and NCDRC in India not equipped to handle this matter?

A: Zettai, a Singapore incorporated entity, took custody of the Platform’s assets following an ownership dispute with Binance which is ongoing. If Binance is determined to be the owner of the Platform and its assets as an outcome of the dispute, the Platform’s users will be creditors of Binance for the crypto assets. In the interests of the Platform’s users, Zettai is proactively stepping forward to propose a restructuring of the Platform’s crypto balances so that users would not have to wait for the resolution of Zettai’s dispute with Binance. 

Q: Why is the management of Zettai able to make decisions around the restructuring when the ownership of the Platform is under dispute and unclear?

A: Zettai has been handling crypto deposits under protest since Jan 23 while the ongoing dispute with Binance is progressed towards a resolution. Zettai is best placed to propose a swift solution to crypto users’ balances following the cyberattack, and thus Zettai has taken the decision to progress the restructuring in the interests of the Platform’s users. 

The alternative is to wait for the resolution of the ongoing dispute with Binance, which is uncertain. Zettai is proactively stepping forward to propose a restructuring of the Platform’s crypto balances, so that users will have access to liquidity in a shorter span of time.

Q: You have maintained that crypto assets were affected by the cyberattack and INR was not affected. You have further confirmed that Zanmai is managing INR operations and Zettai is handling crypto deposits. In this situation, why did you file an FIR in India and not in Singapore?

A: Both Zanmai and Zettai have reached out to the relevant authorities in India and Singapore respectively. Zanmai and Zettai will work to keep the Platform’s users appraised of any developments on that front. 

Q: Does WazirX and current management have the legal authority to enter into and close deals with potential white knights who had expressed a concern about staying out due to an ongoing dispute between WazirX and Binance?

A: The options for any deals or partnerships with potential white knights would be circumscribed by what Zettai can do pending resolution of the ongoing dispute with Binance. We however do not rule out exploring any other options that would also require Binance’s involvement and would engage Binance accordingly at that stage.  

Q: Can you provide a detailed explanation of how the security breach occurred and what specific vulnerabilities were exploited? 

A: We refer you to blog posts dated July 18, 2024, July 21, 2024, and July 25, 2024.

Zettai is working with professional technical advisors to trace, tag and generate a recovery strategy and will keep creditors updated in due course.

Q: What is the current status of the investigation into the cyberattack, and how does WazirX plan to recover the stolen crypto? Who are the past and expected investigation agencies? Are any government departments, local or foreign, involved?

A: The relevant authorities in India and Singapore are investigating the cyberattack carried out against WazirX. We will keep the Platform’s users updated on any developments. 

The Platform is concurrently working with zeroShadow and Kroll to trace assets, understand the likelihood of recovery, and propose the next steps for recovery. All creditors will be kept updated of these investigations.

August 28, 2024

Q: What is a Singapore Scheme of Arrangement?

A: A Scheme of Arrangement is a corporate rescue and restructuring mechanism set out under the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”) of the Singapore regulatory framework. Through 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. A Scheme is subject to approval by a majority in the number of each class of creditors holding at least 75% of the liabilities owing by the Company and the Court’s sanction. 

A creditor-approved and Court-sanctioned Scheme will be legally binding on both the Company and its creditors, and the IRDA sets out clear timelines, requirements and Court processes to ensure that creditors have enough information to make an informed decision on the proposed terms.

Q: How does the Moratorium process work?

A: In Singapore, a moratorium is a legal mechanism that provides temporary relief to businesses facing financial difficulties. It essentially halts legal actions, enforcement proceedings, or debt recovery efforts during the moratorium period and provides time to the moratorium applicant to restructure their finances, negotiate with creditors, or find other solutions address their financial issues without  the immediate threat of legal action or insolvency proceedings. 

In few cases, such as those that are initiated under Insolvency, Restructuring, and Dissolution Act  (IRDA), an automatic moratorium of 30 days is granted. In other cases, a moratorium needs to be  granted by the courts upon application, and requires demonstrating that the moratorium is necessary to  facilitate a restructuring process. 

Q: What is a moratorium? Why is Zettai applying for a moratorium?

A: A moratorium is a form of legal protection under Singapore law that protects the applicant from creditor enforcement, such as winding-up proceedings, enforcement of security and other legal proceedings which are stayed until the expiry of the moratorium. 

Zettai is applying for a moratorium to ensure that Zettai has sufficient time and breathing space to work on a restructuring for the benefit of its creditors, which is the fastest and most effective process for users to receive improved token recoveries. 

A moratorium is key to ensuring that a restructuring is possible, and it is in the users’ interests to support Zettai’s moratorium application.

Q: When am I going to be able to withdraw cryptocurrency?

A: Zettai is pursuing a restructuring under a Singapore Scheme of Arrangement. Once the restructuring proposal and Scheme is approved by creditors and sanctioned by the High Court of Singapore, Zettai will be able to re-open cryptocurrency withdrawals in line with the terms of the Scheme.

A Scheme is expected to take at least 6 months and is the fastest route to allowing the reopening of cryptocurrency withdrawals.

Q: What is an unsecured creditor, and why are users unsecured creditors?

A: An unsecured creditor, in this case, holds unsecured claims for the value of their token balances and does not have a claim over any specific tokens. 

The Platform’s terms of use set out the legal basis of each user’s unsecured claim associated with their account balances on the Platform. A user can make deposits and conduct trades and would have a claim for the account balances on the Platform. In the event the Platform’s users make withdrawal requests in accordance with the Platform’s terms of use, Zettai would be liable to transfer those sums to the users (if Zettai is found to own the Platform together with its funds). With this in mind, the users are contingent creditors of Zettai. 

In other words, there is no special arrangement between general users of the Platform and the Platform in that the Platform holds any specific tokens deposited with the Platform on trust for the general users, and thus, no proprietary claim (i.e., a claim for specific identifiable property) arises. On the other hand, the Platform had accepted deposits of cryptocurrency tokens 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.  

Q: Why can’t Zettai just re-open cryptocurrency withdrawals now?

A: The cyberattack on 18 July 2024 resulted in a large volume of ERC-20 tokens being stolen, which affected the token assets of the platform in an inconsistent manner as non-ERC-20 tokens were unaffected and remain under the platform’s control.

This has caused the token assets of the platform to be significantly out of balance from user token balances shown on the WazirX platform, which represent contingent unsecured claims against Zettai.

A Scheme is necessary to facilitate a legally binding, equitable, and creditor-approved approach to the distribution of token assets. 

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.