We would like to thank all creditors who participated in our recent webinar.

For those who could not make it, please find the link to the video recording of webinar held on 9 February 2023 at 8.30 pm (Singapore time) here. The slides used during the session can be found here.

Q&As as of 9-Feb-23

1. Vauld Group Financial Position and Fund Status

2. Updates on Restructuring

3. Governance of Restructuring Plan

4. COC Related

5. Next Steps and Timelines

1. Vauld Group Financial Position and Fund status:

1.1 What is the present financial situation of the Vauld Group?

The Company’s assets total ~USD262m and comprise ~USD105m in Liquid Assets and ~USD157m in Illiquid assets. The Company’s unsecured Claims total ~USD328m. The latest Asset / Claims deficit is ~USD65m or 20% as of a valuation date of 26 January 2023.

For more details, please refer to slides 4 and 37 of 3rd Webinar Meeting slide deck.


1.2 How are the assets and liabilities valued?

Assets are valued using 14 December 2022 token balances and 26 January 2023 token prices. With no substantial transactions occurring between 14 December 2022 and 26 January 2023, Asset token balances remain materially unchanged between these dates. Claims (liabilities) are valued using token balances due to Vauld customers and token prices as of 4 July 2022. This is equivalent to the overall amounts in the Vauld app of all customers at the date of suspension of customer accounts.

For more details, please refer to slides 4 and 38 of 3rd Webinar Meeting slide deck.

1.3 What is the status of the loan to Counterparty A?

In our assessment, the amount due from Counterparty A will not be collected in June 2023 per the terms of the loan agreement. Active recovery efforts and likely litigation will be necessary, and the timing of recoveries is estimated to be at least 3Q 2024.

For more details and risks involved, please refer to slides 5 and 40 of 3rd Webinar Meeting slide deck.

1.4 What is the status of CoinLoan receivables?

Vauld terminated the CoinLoan account and sought a full refund under the terms of the agreement with CoinLoan. CoinLoan responded by freezing all withdrawals. Vauld is taking steps to recover the balances held with CoinLoan, including commencing potential legal action against CoinLoan in Estonia. Timing of recoveries is estimated to be 2Q2026.

For more details and risks involved, please refer to slides 5 and 40 of 3rd Webinar Meeting slide deck.

1.5 What is the status of Flipvolt receivables?

DeFi Payments has an intercompany receivable from Flipvolt that cannot be realized at this time due to the Enforcement Directorate of India having frozen the assets of Flipvolt pending investigation into the possible money laundering activities of one of Vauld’s customers.

There has been an initial hearing before the Adjudicating Authority under the Prevention of Money Laundering Act (PMLA) and Foreign Exchange Management Act (FEMA) held in mid-January 2023 regarding the asset freeze with the outcome pending. If the matter progresses further through the judicial system in India, which is likely, it would reasonably be expected to take a further 12 – 18 months for resolution with timing of recoveries estimated at 2Q2024.

For more details and risks involved, please refer to slides 5 and 41 of 3rd Webinar Meeting slide deck.

1.6 What is the status of FTX claims?

FTX is currently undergoing Chapter 11 bankruptcy in the U.S. and the funds are unable to be recovered at this time. DeFi Technologies Europe UAB, the counterparty to FTX, will be able to make a claim against FTX in the bankruptcy proceedings.

Electronic submission of claims has not yet opened and the Court has not yet set a deadline for filing proofs of claim against FTX. As the recoveries in respect of the claim against FTX are highly uncertain in terms of both amount and timing, it has been fully impaired for the purposes of our assessment.

For more details and risks involved, please refer to slides 5 and 42 of 3rd Webinar Meeting slide deck.

1.7 What are the operational costs involved in Restructuring?

In summary, USD2m is forecast to fund legal costs for asset recovery efforts and USD8m is forecast for restructuring and operational costs (including cost of making distributions to creditors) over 3 years.

For a detailed breakdown, please refer to slide 46 of 3rd Webinar Meeting slide deck.

2. Updates on Restructuring

2.1 What is the process overview of the Restructuring Process to date?

There has been a considerable amount of work done in developing the Restructuring Proposal including:

  • engaging in an investor process, supporting the Company in working through a process of due diligence and negotiations with Nexo as a potential acquirer

  • engaging with creditors through the formation of a DeFi Payments Committee of Creditors and through direct feedback regarding developments in the restructuring

  • making practical arrangements for the coordination of voting by up to ~150,000 creditors

More time is needed:

  • to engage further with creditors to narrow down the options for a Restructuring

  • to develop and produce an Explanatory Statement, which is a detailed document outlining the background to the situation and terms of the Restructuring Proposal, and making this document available to all creditors with sufficient time allowed to read and understand in advance of voting on the Restructuring Proposal

  • to accommodate Singapore court processes that include statutory timelines leading to the sanctioning of the Restructuring Proposal via a Scheme of Arrangement

Key Objectives of a Restructuring include

  • making early, in-kind liquidity available to Creditors who are prepared to exit at a discount

  • delivering maximum in-kind value to Creditors

  • treating Creditors fairly and providing options including choice

  • introducing governance and structure to deliver proposal

  • achieving a better outcome for all Creditors than under a Liquidation

2.2 What are the restructuring options being contemplated?

Funds Under Management - Remaining Liquid Assets following the initial RDA is retained over a three-year period for investment by a third-party professional crypto asset manager, which would provide an opportunity for those creditors who remain in the restructuring access to a potentially higher level of recoveries through gains made from fund manager’s performance

Managed Wind-Down – Remaining Liquid Assets following the initial RDA, instead of being invested with a fund manager, are held in token denominations chosen by creditors. There is no active investment of the funds and the level of Assets available for payouts over time will be determined solely by net recoveries of Illiquid Assets able to be achieved

The major difference between these two possible Restructuring Proposals is that by placing Funds Under Management, creditors can achieve a higher level of recoveries than under a Managed Wind-Down.

For more details, please refer to slide 22 of 3rd Webinar Meeting slide deck.

2.3 What is the treatment of claims under a restructuring?

In summary, creditors will be allowed a one-time conversion opportunity (“Conversion”) to trade their Claims into a token denomination of the top few cryptocurrency tokens that the Claims are denominated in. Creditors will then maintain their Claims in this post-Conversion composition.

After the initial RDA: (i) a part of the remaining Creditors’ Claims will be maintained in the post-Conversion composition proportionate to the ratio of Liquid Assets to total remaining Creditors’ Claims and (ii) the balance of remaining Creditors’ Claims will be converted pro-rata to the token composition that Illiquid Assets are expected to be realised in.

For detailed explanation, please refer to slides 11 – 15 of 3rd Webinar Meeting slide deck. To refer to the worked examples, please refer to slides 16 – 21.

2.4 How are assets managed in the Restructuring?

Remaining Liquid Assets after the initial RDA are proposed to either be (i) invested with a fund manager (i.e. Funds Under Management) or (ii) held in the Creditors’ choice of tokens (i.e. not actively managed via Managed Wind Down).

For more details, please refer to slide 22 of 3rd Webinar Meeting slide deck.

2.5 What is the purpose of RDA? How will the RDA be conducted?

In summary, the RDAs are intended to give Creditors an option to exit early at a potentially higher recovery than: (i) if all Liquid Assets were distributed pari-passu without RDA, or (ii) stay in the Restructuring and be potentially rewarded for taking on the risk in relation to recoveries of Illiquid Assets.

For more details on the RDA process, please refer to slides 12 and 43 of 3rd Webinar Meeting slide deck.

2.6 When will the RDA process take place?

An initial RDA to be conducted upon implementation of the Scheme which is expected to be July 2023. Subsequent RDAs to be conducted upon recovery of major Illiquid Assets, including the Illiquid Assets and claim in the FTX bankruptcy

2.7 Are there chances of Liquidation?

DeFi Payments is under a moratorium for the purpose of developing a Restructuring Proposal under Court supervision. The moratorium prevents any winding up application against DeFi Payments. If the Restructuring plan fails at a vote of the creditors, and the Court is unsatisfied that a moratorium be extended for the purposes of exploring alternative restructuring options, the Company is likely to face winding up petitions from creditors and be put into Liquidation.

2.8 In case of Liquidation, how will DeFi Payments be managed? What will be the likely outcomes of a Liquidation?

A liquidation would be managed by a third-party Liquidator who will have full control of the Company’s assets. The Liquidator displaces DeFi Payments management who will not play an active role in asset recovery efforts going forward, resulting in a potentially greater level of impairment and possible delay of recoveries.

For more details, please refer to slides 8 and 9 of 3rd Webinar Meeting slide deck.

2.9 What is the possible recovery under Fund Management?

Key Observations / Assumptions:

  • Initial estimated target RDA of 40% (i.e. a creditor who exits at the initial RDA achieves a 40% recovery of their claim). Subsequent RDAs targeted upon the recovery of loan receivables with recoveries between 87% - 93%

  • Creditors that remain until end of Restructuring and do not participate in any of the RDAs can potentially recover more than 100% of their claims (~147%) as (i) the assets managed by the FM are allowed to grow over the three-year period and (ii) the pool of claims have been reduced via the three RDA events in Years 1 and 2

For detailed breakdown of cash flows and assumptions, please refer to slides 28 and 44 of 3rd Webinar Meeting slide deck.

2.10 What is the possible recovery under Managed Wind down?

Key Observations / Assumptions:

  • RDA availability and mechanism similar to the Restructuring – Funds Under Management option with 3 early liquidity opportunities in the form of 3 separate RDAs

  • Average 80% recovery for the entire creditor base, which is lower than Funds Under Management as assets are not invested and grown under a Managed Wind Down

For detailed breakdown of cash flows and assumptions, please refer to slides 28 and 45 of 3rd Webinar Meeting slide deck.

2.11 What is the possible recovery under Liquidation?

  • All distributions will be made according to progress on the Liquidator’s work and statutory timelines, the earliest of which is expected to take up to a year. Subsequent distributions may be made on a yearly basis subject to the Liquidator’s ability to recover third-party receivables

  • We have assumed a three-year timeline for a Liquidation which appears reasonable however is subject to significant uncertainty and may take more than three years

  • A Liquidation will generate an average 64% recovery for the entire creditor base and is the most expensive and least effective option

For detailed breakdown of cash flows and assumptions, please refer to slides 8 – 9 and 47 of 3rd Webinar Meeting slide deck.

2.12 Will there be an open voting on FM, Managed Wind down and Liquidation etc.?

After the Creditor Town Hall on 9 February 2023, an informal voting exercise will be open from 9 to 15 February 2023 to all creditors to provide an indication of the preferred recovery option and to provide feedback to the Company. This informal voting exercise is merely an indication of creditors preference and will not constitute a binding Restructuring Plan.

Creditors will be able to choose one of the following 4 options:

  • Would vote for Funds Under Management ONLY

  • Would vote for Managed Wind Down ONLY

  • Would vote for EITHER Funds Under Management or Managed Wind Down

  • Would vote AGAINST any restructuring proposal

Further questions will be posed to gauge creditors’ preference in respect of specific fund managers, payout mechanism and interest in an RDA.

Please click here to submit your vote, if not done already.

The Company will be able to gauge the preference of creditors based on the informal voting exercise and prepare a Restructuring Proposal taking into account creditors’ preferences. There will only be one option available in the formal voting in respect of the Restructuring which will be the best plan for creditors as determined from an assessment of creditors feedback.

2.13 Will there be an exit option after agreeing to the Restructuring Plan?

Yes, creditors who require early liquidity may exit the Restructuring Plan via the initial RDA carried out upon implementation of the Scheme.

2.14 How are we evaluating the fund managers and have we shortlisted any?

Fund managers have been evaluated based on the quality of their track records and their ability to deliver the target performance to maximize value to creditors while minimizing risk. We have shortlisted 3 fund managers whom we are engaged in advanced discussions with and are ready to enter into binding terms with a fund manager upon indication of creditors on their preferred option.

For more details, please refer to slide 26 of 3rd Webinar Meeting slide deck.

2.15 Will the RDA be available for creditors with INR balance (i.e. Flipvolt creditors)?

No, the RDA (or alternate early liquidity event) would only be available for creditors of Defi Payments. Creditors with INR balances will be paid in full sub INR balances paid in full upon approval of the Restructuring Plan subject to the release of Flipvolt’s frozen assets by the Enforcement Directorate and the sufficiency of assets.

For more details, please refer to slide 6 of 3rd Webinar Meeting slide deck.

2.16 Interest earned after 4-July-22 will not be paid, however we are still accountable to pay taxes on the interest amount? Please clarify.

As part of the Restructuring, documentation will be made available to creditors to confirm historical losses on investment and the waiver of the right to claim interest accrued after 4 July 2022 under the Restructuring. Said documentation may be presented to tax authorities to substantiate tax losses and contest any tax liability arising from the interest accrued after 4 July 2022.

3. Governance of Restructuring Plan

3.1 What will be the Governance mechanism applied to implement the Restructuring plan?

Please refer to slides 25, 48 – 49 of 3rd Webinar Meeting slide deck to know about the Governance mechanism proposed to implement the Restructuring plan.

3.2 Who are the Board of Directors and what will be their role?

The role of the directors of DeFi Payments is to oversee the implementation of the Scheme and overall ensure good governance

A board to include: (1) Defi Payments CEO (TBD other than the Co-Founders, currently under discussion); (2) Vauld creditor representative(s); and (3) Scheme Manager (Kroll representative)

A representative of the third-party crypto asset manager will be added to the Board of Directors of DeFi Payments. This board representative will be delegated responsibility by the Board of Directors to manage cryptocurrency assets for DeFi Payments.

3.3 How will the Third Party Validation be conducted?

Independent, third-party experts will be provided the necessary evidence (e.g. links to blockchain explorers, to show token balances by address) to allow them to conduct an independent process of adjudication of creditors claims and ongoing periodic independent valuation of the asset portfolio

3.4 Who will be owning the asset recoveries?

Asset recoveries will be owned by DeFi Payments and will be distributed to creditors upon realisation via RDAs.

3.5 What are the responsibilities of a Scheme Manager?

The Scheme Manager will be responsible for implementation of the Scheme, including oversight of the distribution of proceeds. Additionally, he/she will be supporting the management in asset recovery efforts

3.6 How will the Independent Advisory Committee be formed?

An Independent Advisory Committee will be composed of a proposed five DeFi Payments creditors. The role of the Independent Advisory Committee would be to work with the Crypto Asset Manager in establishing the investment strategies, working with the fund manager on the risk profile.

4. COC

4.1 Have we increased the count of COC as suggested by the Court?

We have finalized the updated list of COC members which currently consist of 29 members. A letter has already been issued to the Court regarding the changes to the COC and communications platform.

4.2 Did COC sign an NDA with Vauld? Why are they reluctant to share the meeting slides, updates?

COC did not sign an NDA with Vauld. We requested the COC to refrain from distributing the COC meeting slides and providing updates as we were refining the restructuring options to take into consideration the feedback during COC meetings. The set of slides presented at the 3rd Webinar dated 9 February 2023 is the result of these refinements and feedback.

5. Next Steps and Timelines

5.1 What are the next steps and timelines?

Set out below is an estimated timeline for the next steps in the proposed restructuring:

Date

Description

9 February 2023

Third Creditor Virtual Town Hall

9 to 15 February 2023

Informal voting exercise open to all creditors to provide an indication of the preferred recovery option and to provide feedback to the Company.

Creditors will be able to vote as follows:
• FOR: Restructuring Plan including Funds Under Management ONLY
• FOR: Restructuring Plan including Managed Wind Down ONLY
• FOR: Restructuring Plan including EITHER Funds Under Management or Managed Wind Down
• AGAINST: Any proposed Restructuring Plan
Additional poll will be taken for preference of potential fund manager and interest in RDA participation.

15 to 22 February 2023

Work with COC to take into account voting and develop a Restructuring Proposal. If appropriate, finalise and enter into a term sheet with a Fund Manager.

Mid-end February 2023

Finalise proposed Restructuring terms. Tentative court hearing on a further moratorium extension.

28 February 2023

End of moratorium

March 2023

Prepare, finalise and issue Explanatory Statement

April 2023

Apply to Court for leave to convene a meeting of creditors

April / May 2023

Submission, adjudication and appeal of Proof of Debt

April / May / June 2023

Scheme meeting and voting on the Restructuring Proposal

June 2023

Court sanction of the Scheme

July 2023

Implementation of the Scheme subject to the above timeline being met

Please refer to slides 31 – 32 of 3rd Webinar Meeting slide deck.

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