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Judgment finds that crypto debt can be used to wind up a company in Singapore

Posted: 24/11/2023

The High Court in Singapore has ordered the winding up of Hodlnaut Pte Ltd, a Singapore based cryptocurrency lending and borrowing platform, as it was cash flow insolvent given that the cryptocurrency funds held by the company from various creditors count as ‘debts’ within the meaning of s125(1)(e) of the Insolvency, Restructuring and Dissolution Act 2018 (IRDA).

This case distinguished the earlier Singaporean case of Algorand Foundation Ltd v Three Arrows Capital Pte Ltd (HC/CWU 246/2022), where the winding up petition was based on a written demand for cryptocurrency under s125(2)(a) of the IRDA (which mirrors a statutory demand under English law). The petition there failed on the basis that the demand was not for a sum of money.

The case

In the recent case of Aaron Loh Cheng Lee and another v Hodlnaut Pte Ltd [2023] SGHC 323, an application was made for the winding up of Hodlnaut on the basis that it was cash flow insolvent[1] under s125(1)(e) of the IRDA, which mirrors s122(1)(f) of the Insolvency Act 1986. This provides that ‘[t]he Court may order the winding up of a company if the company is unable to pay its debts’, which is to be interpreted alongside s125(2)(c), that provides a company is unable to pay its debts if ‘it is proved to the satisfaction of the Court that the company is unable to pay its debts; and in determining whether a company is unable to pay its debts the Court must take into account the contingent and prospective liabilities of the company’. 

The two directors of Hodlnaut opposed the winding up petition on the basis that the cryptocurrency funds held from various creditors should not count as ‘debts’ within the above sections of the IRDA. Alternatively, they argued that the court should use its discretion to allow the company further time to enable restructuring to be attempted.

The judgment

It was held that Hodlnaut was unable to pay its debts as its obligation to its crypto creditors ‘count as debts owed by the Company and are relevant in determining whether the Company is insolvent’. Further, it was held that the halt imposed by the company on the creditors on the withdrawal of cryptocurrency did not alter the outcome, as the halt ‘does not extinguish the liability, nor does it necessarily postpone the accruing of liability for the purposes of cash flow insolvency’. Finally, the directors failed in their attempt to be allowed further time to restructure as the judge considered that the potential success of the proposed restructure was ‘very low’ and it was not supported by the major creditors.

The judge’s analysis

The judge stated that the cash flow insolvency test is broad and the court should consider whether a company’s current assets exceed its current liabilities, such that all debts can be met as and when they fall due within a 12 month timeframe, and time should be given for the realisation of liquid assets.

Also, given that the IRDA expressly stipulates contingent and prospective liabilities, ‘the court should take a holistic position of the company and consider not just liquidated claims, but also those that might be made on the non-monetary assets of the company, though which may ultimately be payable in money’.

The judge held that the directors’ reliance on s125(2)(a) (the equivalent to a statutory demand under s123(1)(a) of the Insolvency Act 1986) does not assist the directors as it involves the indebtedness being measured by reference to a specific amount of money above $15,000 on a specific claim, in contrast to the holistic approach under s125(2)(c) of the IRDA. The judge did not consider it controversial that debts are to be defined in money or money’s worth as ‘it did not follow that because debts are quantified in terms of value in currency, it is only when an actual quantification of assets in monetary terms has been determined through concluded court proceedings that a debt arises’. 

The judge considered that the value of these assets could be assessed by the court in a winding up petition based on the evidence before it. The fact that in this case the holdings were ‘in cryptocurrency did not affect the outcome; this was just a particular kind of asset’.

The court distinguished the court’s judgment in the earlier case of Algorand v Three Arrows which was based on the alternative test of insolvency by way of a written demand under s125(2)(a), rather than cash flow insolvency under s125(2)(c). In this case, the relevant requirements were not met as the demand was not for a money sum but had been expressed in cryptocurrency. The judge did not consider that this case stood for the proposition that it was necessary to obtain a judgment for liquidated damages before it can be used in an assessment of cash flow insolvency.

The judge also made clear that nothing in his decision suggests that cryptocurrency should be treated as money in the general sense, and he did not find that there had been an acceptance in any major commercial jurisdiction of cryptocurrency being equivalent to a daily medium of exchange.


A crypto debt can potentially be used to petition for winding up or bankruptcy in England, but there has not yet been any decision in the English courts on crypto debts. However, if the English courts were to look to the Singaporean courts, they may find that a statutory demand under s123(1)(a) of the Insolvency Act 1986, which mirrors s125(2)(a) of the IRDA, would need to be expressed as fiat currency following the unreported decision in Algorand v Three Arrows

However, the valuation of the cryptocurrency in fiat currency in the statutory demand would need to be addressed in the evidence in support of the petition. It remains to be seen whether the English courts will take the view that the requirement under rule 7.3(1)€ of the Insolvency (England and Wales) Rules 2016 to specify ‘the amount of the debt and the consideration for it’ could be specified in cryptocurrency.

In relation to the other tests of a company being unable to pay its debts under English law, including cash flow insolvency and balance sheet insolvency, there would not appear to be a difficulty with demonstrating that a company is insolvent on the basis of a crypto debt, given that under rule 14.1 of the Insolvency (England and Wales) Rules 2016 (or under s382 of the Insolvency Act 1986 for bankruptcy), it should come within the definition of a ‘debt’ as it is a liability to pay ‘money or monies worth’.

[1][1] The cash flow insolvency test is referred to in paragraph 7 of the judgment as being the sole test under s125(2)(c) (see Sun Electric Power Pte Ltd v RCMA Asia Pte Ltd (formerly known as Tong Teik Pte Ltd) [2021] 2 SLR 478.

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