QUESTIONS AND ANSWERS
To assist Scheme Creditors in making a decision to vote either in favour of or against the Scheme, the following Questions and Answers have been prepared.
Reading these Questions and Answers is not a substitute for reading this Explanatory Statement in full. Capitalized words and phrases used in these Questions and Answers have the meaning provided in Section 1.2 (Definitions) of the Explanatory Statement.
Scheme of Arrangement
Restructuring, Claims and Assets
RDAs and Distributions
Governance and Administration
Rebalancing and Conversion
Illiquid Assets and Operational Costs
Scheme of Arrangement
1. What is the purpose of the Explanatory Statement?
The purpose of this Explanatory Statement is to:
provide Scheme Creditors with sufficient information to make an informed decision to vote for or against the Scheme;
inform Scheme Creditors of the voting procedures; and
inform Scheme Creditors of the expected timelines.
2. What is a scheme of arrangement?
A scheme of arrangement is a statutory procedure under Singapore law which allows a debtor to agree on a compromise or arrangement with its creditors, and for the terms of that compromise or arrangement to bind any non-consenting or opposing minority creditors.
3. What is the objective of implementing the Scheme?
The objective of the Scheme is to implement a compromise between the Company and the Scheme Creditors, principally the Unsecured Creditors, in order to give Unsecured Creditors a better recovery compared to their recovery in the event of a liquidation.
4. What is the role of the Company under the Scheme?
If the Scheme becomes effective and binding, the Company intends to fulfil its obligations under the Scheme – in particular, it will:
ensure the full repayment by Flipvolt of INR balances to creditors of Flipvolt;
conduct the Initial RDA and pari-passu distribution of Liquid Assets;
appoint a New Board consisting of a new CEO, the Scheme Manager and a Creditor Representative;
pursue the realization of Illiquid Assets and conduct Subsequent RDAs and/or pari-passu distributions; and
formulate a business plan in respect of the New Business and commence the New Business.
5. What is the position of the management with regard to the Scheme?
The management of the Company believes that a successful implementation of the Scheme will allow the Company’s creditors who urgently need access to liquidity to access said liquidity earlier than under a Liquidation and allow Creditors who are willing to forego early liquidity opportunities to stay in the Restructuring and improve their recoveries through a combination of liability reduction from the debt tender offers and realization of illiquid assets.
The management of the Company, having considered the terms of the Scheme, and the opinions and advice from the appropriate Advisors, considers that the Scheme is in the best interests of the Company and its stakeholders.
For further details, please see “Management’s Position Regarding the Scheme” under Section 8 of the Explanatory Statement.
6. What arrangement and compromise does the Scheme seek to implement?
The Scheme seeks to compromise and restructure claims via the waiver of accrual of interest and associated benefits since the Ascertainment Date (4 July 2022) and fixing claims in USD as at the Ascertainment Date.
7. What are the financial consequences of the Scheme?
If the Scheme becomes effective and binding on the Scheme Effective Date and the Restructuring is implemented, claims shall be compromised and fixed in USD as at 4 July 2022, with all accrued interest and associated benefits subsequent to this date waived.
The Scheme aims to distribute Liquid Assets and Illiquid Assets to creditors by way of RDA and/or pari-passu distribution. Liquid Assets can be distributed by the Company upon the implementation of the Scheme while Illiquid Assets are distributed upon their realization.
Under the Scheme, the range of average recoveries to Creditors are estimated at 36% to 93% depending on the level of Illiquid Asset recoveries. Individual Scheme Creditors may receive different levels of recovery under the Scheme depending on their participation in RDA(s) and the overall outcome of each RDA. Creditors may refer to Section 10 (Expected Returns Under the Scheme) of the Explanatory Statement for more details and modelled across different Illiquid Asset realization scenarios and average RDA discount bids achieved in the Initial RDA.
Creditors may also utilize an online tool at https://www.vauld.com/restructuring for individual flexibility to under the financial consequences of the Scheme.
8. What happens if Scheme Creditors do not approve the Scheme or if the Scheme is not approved at the Sanction Hearing or does not become effective and binding for any other reason?
If the Scheme is not approved by the Requisite Majority of the Scheme Creditors or is not approved by the Court at the Sanction Hearing, the Scheme will not become effective or binding, and the Scheme Creditors will retain all rights they have had in respect of their claims as if the Scheme had never been launched.
The Company considers that, if the Scheme were not to be successfully implemented, the possibility of successfully implementing an alternative financial restructuring would be very unlikely. The Company would likely proceed to liquidation.
For further details, please see “What happens if the Scheme fails?” under Section 5 of the Explanatory Statement.
9. How does a Scheme Creditor cast a vote?
Voting on the Scheme will take place over a period of 5 Business Days from 24 May 2023 (5pm SGT) to 31 May 2023 (5pm SGT) (the “Voting Period”) via an online voting platform (the “Voting Form”).
Scheme Creditors will receive a link to the Voting Form together with login credentials (comprising a unique alphanumerical code and an email address) for the Voting Form 5 Business Days after the Online Meeting on 16 May 2023. However, Scheme Creditors will not be able to access the Voting Form until the Voting Period commences.
Each Scheme Creditor will only be permitted to vote once. This is regardless of how many registered accounts a Scheme Creditor may have on the Vauld Platform. For those Scheme Creditors who have more than 1 registered account, even if you submit a vote using each of your registered accounts, you would will be considered to have 1 vote, with the value of such vote being the aggregate of your cryptocurrency balances in all of your registered accounts as at 4 July 2022.
Each vote submitted on the Voting Form is final and Scheme Creditors will not be able to able to amend their vote once submitted. Please review your Voting Form carefully before submitting the Voting Form.
10. What happens if a Scheme Creditor fails to comply with the voting procedures for the Scheme?
Any votes submitted after the Voting Period (24 May 2023, 5pm SGT to 31 May 2023, 5pm SGT), the vote will be disregarded unless approved by the Scheme Manager.
Incomplete or erroneous Voting Forms and votes which are not submitted via the Voting Form may not be considered without the approval of the Scheme Manager.
11. What can a Scheme Creditor do if it wishes to dispute his Approved Claim in respect of his outstanding cryptocurrency balance and/or believes that he has an additional claim to make against the Scheme Company?
The Scheme Creditor may log onto the Scheme Website and submit an online dispute form (the “Disputes and Other Claims Form”). The Scheme Creditor will be required to enter his unique login credentials on the Disputes and Other Claims Form before the rest of the Disputes and Other Claims Form generates and the Scheme Creditor will be able to submit a response.
Any disputes or additional claims must be submitted via the Disputes and Other Claims Forms. Submissions via the Disputes and Other Claims Form will be reviewed by the Independent Assessor. The Independent Assessor may but is not obliged to contact the Scheme Creditor for any further information as and when necessary for reviewing his submission. The Independent Assessor is entitled to dismiss any submissions on the Disputes and Other Claims Form which he deems frivolous and/or baseless, or if the Scheme Creditor do not provide sufficient proof or do not timeously provide additional proof as requested by the Independent Assessor to his satisfaction. The Independent Assessor has the final say in this adjudication process. The period for submission of the Disputes and Other Claims Form is 10 Business Days, i.e. from 28 April 2023 (5pm SGT) to 15 May 2023 (5pm SGT).
12. What is the location, date and time of the Online Meeting?
The Online Meeting will be held via a live-stream on Youtube at 9.30pm (Singapore time) on 11 May 2023. The live-stream link will be circulated via email to creditors closer to the Online Meeting. To ensure that Scheme Creditors who are unable to attend the Online Meeting can still access the information shared during the Online Meeting, a recording of the Online Meeting will be made available to all Scheme Creditors within 3 days of the Online Meeting at the same Youtube link and uploaded to the Scheme Website.
13. How will the Scheme Creditors be classed for the purposes of determining the Requisite Majority?
Having considered the existing rights of the Scheme Creditors, and the way in which those rights will be compromised under the Scheme, the Company considers that the Scheme Creditors should be classed into two classes: (i) unsecured creditors of the Company who are also creditors of Flipvolt (i.e. has both cryptocurrency and INR balances) and (ii) all other unsecured creditors of the Company (i.e. has only cryptocurrency balances).
14. When will the Scheme become effective and binding?
Upon satisfaction of all of the Scheme Conditions, the Scheme shall become effective and binding on the Company and all of the Scheme Creditors (regardless of whether a Scheme Creditor participated in the Scheme or not and even if such Scheme Creditor voted against the Scheme) and all of their respective successors, assigns and transferers.
15. What happens on the Scheme Effective Date?
The Scheme Effective Date is the date on which the terms of the Scheme become effective and binding on the parties to the Scheme, being the Company and the Scheme Creditors (regardless of whether a Scheme Creditor participated in the Scheme or not and even if such Scheme Creditor voted against the Scheme), and all of their respective successors, assigns and transferers.
16. Can creditors pursue legal action against the Company once the Scheme is effective?
Once the restructuring is effective under clause 5 of the Scheme, no legal action can be pursued by Scheme Creditors until the end of the restructuring.
17. Where can Scheme Creditors obtain copies of the Scheme Documents?
The Scheme Documents is enclosed to the Notice of Scheme Meeting which has been sent to Scheme Creditors via email on 28 April 2023. Copies of the Scheme Documents may also be downloaded from the Scheme Website. Alternatively, these documents are available to Scheme Creditors by email request to the Scheme Company at firstname.lastname@example.org.
18. Who can Scheme Creditors contact for further queries?
If any Scheme Creditor is facing technical difficulties on the Vauld Platform, Scheme Website or any of the Forms therein, or require assistance in retrieving your log-in details to the Scheme Website, please contact Vauld Care at the email address email@example.com.
If any Scheme Creditor has questions relating to this Explanatory Statement and the Scheme, please submit your questions to the Scheme Company prior to the Online Meeting at this link or contact Vauld Care at the email address firstname.lastname@example.org.
Restructuring, Claims and Assets
1. What are the voting thresholds for a Scheme to pass?
For the Scheme to pass, at least 50% of the Scheme Creditors by number and at least 75% of the value of total Scheme Claims of votes for each voting class must be in favor of the Scheme.
For the avoidance of doubt, the requisite thresholds for the Scheme to pass is not applied to the full number of Scheme Creditors or total value of Claims, but to the number and value of claims of Scheme Creditors present and voting.
2. What are the restructuring options being contemplated?
There is only one restructuring option being presented for a Scheme vote: a Managed Wind-Down. Remaining Liquid Assets following the initial RDA will be repaid to remaining creditors on a pro-rata basis. There is no active investment of the funds and the level of Assets available for recoveries to creditors over time will be determined by net realizations of Illiquid Assets.
3. What is the projected recovery of the Scheme, and what is the estimated timeline for this return?
Assuming that 100% of illiquid assets are recovered with an Initial RDA Discount bid of 45% (base case), the Initial RDA, RDA 2, RDA 3 and Final Distribution is expected to yield 55%, 98%, 103% and 147% of each Participating Scheme Creditor’s Scheme Claims respectively, with the Final Distribution concluding at the end of 3 years.
For further details on the Scenario Analysis conducted by Kroll, please refer to “Section 10: Expected Returns Under the Scheme” in the Explanatory Statement.
4. How is a Restructuring better than Liquidation?
The contemplated Restructuring provides optionality in respect of liquidity opportunities by:
making early, in-kind liquidity available to Scheme Creditors who are prepared to exit at a discount; and
delivering maximum recovery value to Creditors who do not avail themselves of early liquidity opportunities through a combination of liability reduction from the debt tender offers and realization of illiquid assets.
A Restructuring also preserves the value of assets and allow the Company’s management to continue pursuing their strategy of realizing the Illiquid Assets.
In addition, the Managed Wind-Down introduces a strong governance structure capable of delivering proposed Restructuring outcomes.
On the contrary, a Liquidation is likely to result in lower overall recoveries to Scheme Creditors primarily driven by increased liquidation costs and reduced illiquid asset recoveries. The timeline to an interim dividend would reasonably be expected to be significantly longer in a Liquidation (i.e. up to 12 months from the end of the moratorium) as it is subject to statutory timelines.
5. How will claims be treated under the proposed Restructuring?
Total claims will be calculated using token balances and token prices as at the Suspension and fixed in USD terms (“Total Claims”).
Each Scheme Creditor’s individual claim will be calculated using their individual token balances and token prices as at the Suspension and fixed in USD terms (“Individual Claim”). Interest and associated benefits accrued after 4 July 2022 will be waived.
Each Scheme Creditor will have a percentage claim on the assets of the Company as calculated by their individual claim in USD divided by Total Claims in USD as at the Suspension (“Individual % Claim”).
Following the completion of the Initial RDA, Total Claims will be reduced by the balance of claims that exited in the Initial RDA. Post-Initial RDA Total Claims will be derived from the subtraction of claims that exited in the Initial RDA in USD from pre-Initial RDA Total Claims in USD.
Following the completion of the Initial RDA, each remaining Scheme Creditor will have their Individual % Claim recalculated using their Individual Claim in USD divided by the post-Initial RDA Total Claims in USD.
Treatment of claims arising from RDAs subsequent to the Initial RDA will follow the same logic as detailed above.
6. How will assets be treated under the proposed Restructuring?
An Initial RDA will be carried out with USD50 million of Liquid Assets set aside to be used as Buyback Assets for the Initial RDA.
Remaining Liquid Assets after the Initial RDA and Buyback Assets not taken up in the Initial RDA will be distributed to remaining creditors on a pari-passu basis.
Illiquid Assets will be distributed via subsequent RDAs as and when they are realized, with the full balance of realized Illiquid Assets set aside as Buyback Assets for the RDAs associated with their realizations, and with Buyback Assets not taken up in said RDAs distributed to remaining creditors on a pari-passu basis.
7. How are the assets and liabilities valued?
The assets are valued as at the latest token balances and token prices on 24 April 2023. Value of assets will continue to fluctuate due to price movements of cryptocurrencies and may differ at the time of RDA / distribution. The liabilities are valued as at the token balances and prices on 4 July 2022.
8. If token prices appreciate, will Scheme Creditors receive more recovery over their original balance as of 4th July 2022?
Scheme Creditors will hold a percentage share of overall claims as at 4 July 2022 in a token composition of BTC, ETH, XRP or USDC. This percentage share also represents their percentage claim against the assets of the company.
If the value of token prices appreciates materially, Scheme Creditors will still receive their percentage claim against the assets of the company. Depending on the magnitude of token price appreciation, there is potential for Scheme Creditors to receive USD recoveries significantly in excess of their original claims in USD terms as of 4 July 2022.
9. How will creditors with platform loans that are overcollateralised be treated in the Restructuring?
For the purposes of calculating Approved Claims for recoveries under a Scheme, platform loans are netted off against the collateral as at the Scheme Effective Date. For the operational purposes of administration and voting prior to Scheme implementation, the collateral and platform loans are valued as of 21 April 2023.
10. The cryptocurrency market seems to be recovering. If this trend continues, would Vauld be solvent and is a restructuring still required?
In a restructuring scenario, liabilities are compromised under the Scheme and fixed as at 4 July 2022 (including accrued interest till that date). Without the compromise of claims under a Scheme, liabilities are not fixed and due to the rebalancing, will move in tandem with assets due to movements in crypto prices. If token prices increase significantly, the Company will still be quantitatively (balance sheet) insolvent since liabilities exceed assets. The Company is also qualitatively insolvent since it cannot immediately meet all of its liabilities - USD115m of Net Liquid Assets (36% of Scheme Debt) as of 24 April 2023 which can be paid out immediately to Scheme Creditors but USD186m of illiquid assets (57% of Scheme Debt) as of 24 April 2023 cannot be paid out immediately to Scheme Creditors and subject to recovery efforts of the Company.
Therefore, a restructuring is necessary to de-lever the Company and seek a compromise with Scheme Creditors in respect of the repayment of claims while Illiquid Assets are realized.
11. Under the Restructuring Terms, accrued interest earned after 4 July 2022 will not be paid. Certain creditors will however be liable for taxation on said interest accrual – how does the Company propose to address these concerns?
As part of the Restructuring, the Company will provide the requisite documentation 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.
RDAs and Distributions
1. 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. What is the purpose of the RDAs?
The RDAs are intended to give Scheme Creditors an option to exit early at a potentially higher recovery than: (i) if available 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 subsequent recoveries of Illiquid Assets.
3. When will the RDAs take place?
An Initial RDA to be conducted upon implementation of the Scheme which is expected to be July 2023 (subject to Court sanction of the Scheme).
Subsequent RDAs will be conducted upon realization of major Illiquid Assets.
4. How will the RDAs be conducted?
Participation in each RDA is open to all Scheme Creditors remaining in the Restructuring. Upon the successful participation in an RDA, Scheme Creditors will exit the Restructuring and not be eligible for participation in subsequent RDAs.
The Company will set aside a quantity of available liquid assets to be used as Buyback Assets in each RDA. For the Initial RDA, USD50 million of Liquid Assets is anticipated to be set aside as Buyback Assets. If there are any Illiquid Asset realizations in excess of USD10m, the Company has to decide on whether to call a Subsequent RDA on existing Illiquid Asset realizations immediately.
Participating Scheme Creditors will be allowed to offer their Individual Claims up for participation in RDAs at a discount rate bid. Bids may be submitted for full or partial participation of claims. Partial participation of claims will be applied pro-rata across the Scheme Creditor’s claims (i.e. participation % applied at the same rate to claims regardless of token denomination).
Bid ranges on the Initial RDA will be done on a per-token basis (BTC, ETH, XRP and USDC) to account for token price movement between 4 July 2022 and the market price transacted at the Initial RDA to ensure fairness of participation in the Initial RDA and minimize arbitrage. The acceptable range of discounts applied to token balances for the Initial RDA will correspond to 45 – 70% of its USD equivalent value (corresponding to 30% to 55% recoveries in USD). The acceptable range of discounts for subsequent RDAs will be determined with reference to the expected timeline of subsequent realization of Illiquid Assets.
If a conversion, by election or mandatorily, was carried out at the One-Time Conversion, the relevant token balance for consideration under the Initial RDA will be calculated using prevailing market prices as at the time of the Initial RDA. The threshold range for discount bids will remain unchanged at 45% to 70% as the Conversion pricing mechanism already accounts for price movements between 4 July 2022 and the time of the Initial RDA.
If a conversion, was not carried out at the One-Time Conversion, the relevant token balance for consideration under the Initial RDA will remain unchanged from the token denomination that comprised Approved Claims. The threshold levels will be calculated to account for price movement between 4 July 2022 and the time of the Initial RDA so that the target % USD recovery will be in the range of 30% to 55% to mitigate the risk of arbitrage.
Bids will be accepted in order from the highest level of discount in USD terms (based on live market pricing) first and then in progression from highest to lowest level of discount up to the ceiling threshold of 45%, until the RDA Assets have been allocated for pay out either in full or in part. Priority for identical bids will be allocated on a first-come-first serve basis authenticated via bid timestamps.
Scheme Creditors whose bids are accepted will receive payment in the tokens of their choice. The balance of individual claims of these Scheme Creditors will be written off and they will exit the Restructuring with no further eligibility for any subsequent RDA or asset realizations.
The Company will continue this process of accepting bids until all Buyback Assets are fully taken up and used to pay out Scheme Creditors who successfully participate in the RDA. Scheme Creditors who did not participate or participated but were not successful will remain in the Restructuring.
After each RDA, all remaining available liquid assets, net of Reserved Assets, will be distributed pro-rata to remaining Scheme Creditors on a pari-passu basis.
5. How will the Final Distribution be conducted?
Upon recovery of the third and final of the three Major Illiquid Assets or the determination by the Scheme Manager that there is no further recovery possible on the Major Illiquid Assets, the funds will be paid out to the Remaining Claims on a pari-passu basis, and all Remaining Claims will be extinguished. Remaining creditors will be required to ‘opt in’ to receive a share of the final distribution.
Can the Company hold on to assets without distribution to Scheme Creditors upon recovery of an Illiquid Assets instead of conducting an RDA or pari passu distribution?
No, the Company cannot hold onto assets if illiquid assets are realized and is obligated to conduct an RDA or distribute the assets pari passu.
If there are any Illiquid Asset realizations in excess of USD10m, the Company has to decide on whether to call a Subsequent RDA on existing Illiquid Asset realizations immediately. If a Subsequent RDA is not called at these decision points, the Company has to carry out a pari-passu distribution within 15 business days. If at the end of each 6 months Illiquid Asset realizations have not exceeded USD10m, they will be paid out pari passu within 15 business days.
6. Do customers still need to complete KYC before withdrawals can be made at the scheduled timeframes or after RDA? Is the KYC process within the app still functional?
All creditors would need to complete KYC before withdrawals can be made from the Vauld platform. This process will commence shortly and run parallel to the Scheme Implementation.
7. What are the benefits and risks associated with staying and exiting the Restructuring?
Scheme Creditors who need liquidity can opt for the Initial RDA to exit the Restructuring immediately at a recovery higher than 36% and avoid taking on illiquid asset realization risk.
Scheme Creditors who decide to stay in the Restructuring and take on Illiquid Asset realization risk can potentially get higher overall recoveries driven by reduction in Scheme Debt from RDAs, at the cost of potentially getting lower recoveries in the event of impairments to Illiquid Asset realizations.
Whilst it is up to the choice of Scheme Creditors to take their own view, the Company has prepared an online tool to aid creditors in understanding the proposed Restructuring which may be accessed at: https://www.vauld.com/restructuring
8. Will all Scheme Creditors get at least a part of their claims this year regardless of whether they were unsuccessful / choose not to participate in the RDA?
The remaining liquid assets (USD115m less USD50m used up in the Initial RDA) will be utilised for the pari passu distribution for creditors who were not successful in the Initial RDA. Hence, subject to the Scheme being approved and sanctioned in line with our expected timelines, all creditors will get at least some recoveries this year.
9. Is it possible for Scheme Creditors to do an early exit via the Initial RDA and get back the full amount invested?
It is not possible to obtain an early exit with the full amount of tokens invested as there are insufficient Liquid Assets to distribute to all creditors. If the RDA bid does not meet the minimum threshold, it will be rejected.
Of the forecasted RDA administration costs, what fraction is for the initial RDA, and for each subsequent RDA?
To run the RDA, it requires a one-time cost of USD50k to set up the RDA infrastructure platform and USD75k to run each RDA. Assuming 100% of Illiquid Assets are realised (USD186m valued as at 24 April 2023), the total cost to run the 3 RDAs of USD275k is approximately 0.15%.
10. What do Scheme Creditors need to do to prepare for RDA participation or withdrawal of funds at scheduled times?
If Scheme Creditors would like to participate in the RDA and exit the restructuring, they would have to decide on:
the percentage of claims participating in the RDA. This percentage will be applied pro-rata across the Scheme Creditors’ Approved Claim; and
which tokens will be put up for RDA and the bids for each token participating in the RDA.
Participation in an RDA is optional.
Scheme Creditors will need to log into the Scheme Website or similar and enter into a form their participation and bids within the stipulated timeframe. Further details on the required steps for Scheme Creditors who wish to participate in the RDA will be circulated at a later date.
Once the RDA bidding is complete and results of the RDA is announced, Scheme Creditors who are successful in the RDA will have the token balances available for withdraw reflected in their Vauld account. To complete the withdrawals, Scheme Creditors will have to complete the KYC requirements. Further details on the KYC requirements will be released at a later date.
1. How will creditors with INR balances be treated under the Restructuring Plan?
Creditors with INR balances are creditors of Flipvolt, not the Company. Therefore, these creditors are not bound by the Scheme.
Presently, Flipvolt’s assets have been frozen by the Enforcement Directorate of India and it is estimated that it will take 12 – 18 months to unfreeze these assets.
Under the Restructuring Terms, it is proposed that INR balances be paid out in full from Flipvolt assets if Flipvolt’s assets are unfrozen before Scheme implementation. If Flipvolt’s assets remain frozen at the time of Scheme implementation, INR balances are proposed to be paid out in full from assets of the Company.
In the latter case, the usage of the Company’s assets to fund repayment of Flipvolt’s creditors will be treated as an intercompany loan from the Company to Flipvolt for the balance of the INR repayment. The intercompany receivable due from Flipvolt to the Company will accordingly be revised upwards to reflect this intercompany loan to ensure that there is a net zero impact on recoveries to Scheme Creditors under a Restructuring.
Creditors with INR balances may choose to receive their payment in INR or a USD-linked stablecoin converted at market prices and withdrawable from Vauld Accounts only upon the completion of KYC and fulfillment of crypto transaction fees.
2. Is payment to INR Creditors certain?
Under clause 6.1 of the Scheme, the Company shall undertake to satisfy the liabilities owed by Flipvolt to Customer Creditors who are also creditors of Flipvolt for the amount of monies in INR outstanding in their accounts maintained on the Vauld Platform. There is no ambiguity in respect of INR payments and the Company has undertaken to provide this assurance as set out in the SOA.
3. Will you allow INR Creditors to swap their existing INR wallet balances into crypto to generate yield in for the Business Restart?
INR creditors may use their INR payments received to invest, as new money, in the DeFi strategies offered by the New Business.
4. How would making INR holders whole via Defi Payment’s intercompany loan to Flipvolt at the onset of Scheme Implementation satisfy the legal requirement that all Scheme Creditors be treated equally under the scheme?
INR holders are creditors of Flipvolt, not Defi Payments. Whilst Defi Payments is undergoing a restructuring and not legally required to pay INR holders, the Company, advisors and COC through active discussions agree that the Scheme can provide for INR creditors to be paid first and will be legally binding if the Scheme passes.
Moreover, this does not prejudice recoveries to Scheme Creditors as the INR payment will be added to Flipvolt's intercompany receivable and is expected to be paid back in full upon the unfreezing of Flipvolt's funds.
The Court has directed that creditors of both Flipvolt and the Company be put into a different class from creditors of only the Company for the purposes of voting to distinguish the different treatment of these creditors under the Scheme.
5. Will INR Creditors only be able to receive their funds in INR?
The Company will give INR creditors flexibility to receive INR repayments in INR or in USDT (at market prices) in their Vauld accounts. The USDT balances credited can only be withdrawn subject to completion of KYC and fulfilment of crypto withdrawal transaction fees.
Governance and Administration
1. How will the Company ensure transparency in respect the Scheme voting and adjudication of Claims?
Kroll Issuer Services (KIS), an arm of the Kroll organization separate from the team that is assisting the Company as restructuring advisors, will act as Information Agent and Tabulation Agent for the Scheme voting process and adjudication of Claims.
KIS, a combination of legacy Lucid Issuer Services and Prime Clerk’s Global Corporate Actions teams, provides comprehensive debt restructuring services managing the implementation of restructuring initiatives. KIS is authorized and regulated by the Financial Conduct Authority in UK and has managed more than 2,500 deals across all market sectors globally. KIS had acted in various capacities on many of the largest and most complex restructuring such as Virgin Atlantic, Noble Group, PremierOil, New Look and others.
Quantuma, a third-party independent assessor, has be engaged to adjudicate Scheme Creditors’ claims and disputes in respect of Claims under a Restructuring.
2. How will the Company ensure transparency in respect of assets?
Liquid Assets have been largely migrated to a third-party custodian (Liminal) and maintained on-chain to allow independent verification by Scheme Creditors. Once available, assets held in Delta Exchange and CoinDCX will be migrated to Liminal and maintained on-chain. Realized illiquid assets will be maintained on-chain by said third-party custodian up to the distribution via RDA to ensure transparency.
Scheme Creditors has been provided the necessary evidence (e.g. links to blockchain explorers, to show token balances by address) in the appendices to the Explanatory Statement to allow them to conduct an independent verification of the Company’s assets.
3. Who are the Board of Directors and what will be their role?
Darshan Bathija (CEO and co-founder) and Sanju Sony Kurian (CTO and co-founder) will resign from the Company’s Board of Directors and step down from management positions. A Creditor Representative will be appointed to the New Board who may be a qualified professional (individual or firm) nominated by the general body of creditors. A newly appointed CEO of the Company and a representative of the Scheme Manager will also be appointed to the Board of Defi Payments. Reserved matters will include a 100% approval requirement of material variations to the Scheme cost forecast, format and execution of Subsequent RDAs, oversight and approval in respect of the proposed New Business, and the End Date for the Scheme.
4. 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 illiquid asset realization efforts.
5. Under clause 11.5 of the Scheme, if a quorum for a meeting organised by Scheme Creditors (not Scheme Manager) is met, what decisions can be taken at that meeting? What are the limitations?
In order to safeguard the general body of creditors from decisions made by certain creditors in a Scheme Creditor's Meeting, under clause 11.13 of the Scheme, the Company and/or Scheme Manager is not obliged to act upon or implement any resolution passed at any Scheme Creditors' Meeting. This would include the case where the Scheme Manager does not attend or declines to chair the meeting and a Scheme Creditor chairs that said meeting.
However, if the general body of creditors wish to pass a resolution of material importance at a Scheme Creditor's Meeting such as the termination of the Scheme (clause 3.3), amendment / variation of the Scheme (clause 19.1), replacement of Scheme Manager (clause 14.9(e)), it will be effective, under clause 11.10 of the Scheme, if a Special Resolution is passed with at least 50% in numbers and 75% in value of Scheme Creditors present and voting.
Rebalancing and Conversion
1. Can Scheme Creditors participate in the conversion of their tokens without participating in the RDA?
Yes, and the pari-passu distribution after the Initial RDA will be made in the token they choose in the conversion.
2. Will the Conversion and Rebalancing occur before or after the Initial RDA? For e.g. a user holding MATIC participates in the RDA. In case of a successful bid, will the recoveries be in the form of MATIC?
The Conversion and Rebalancing will occur before the Initial RDA.
Creditors holding BTC, ETH, XRP and USDC can choose to convert the tokens for receipt of the Net Liquid Assets into a different token combination of BTC, ETH, XRP and USDC. Creditors holding all other tokens (non-BTC, non-ETH, non-XRP, non-USDC) will be subject to conversion into a token combination of BTC, ETH, XRP and USDC of choice. If no choice is elected, the distribution of Net Liquid Assets to them would be made in USDC.
3. As the Company is valuing its liabilities as at 4th July 2022, how does market change impact the recoveries? How is the Company going to accommodate the price increase or decrease?
Scheme Creditors who elect to have the tokens held by the Company on their behalf converted to a different token will bear the impact of market pricing on these tokens at the time that the Company enters the market to effect the requested Conversion of Liquid Assets on behalf of these Scheme Creditors.
Initial RDA and Pari-Passu Distribution:
Creditors who successfully participate at the Initial RDA will receive their recoveries at the successful discount bid on the combination of tokens chosen at the Conversion.
After the Initial RDA is complete, remaining Scheme Creditors will be paid back the remaining Liquid Assets proportionate to the Remaining Post-RDA claims and tokens chosen at the Conversion. Any price movements of those tokens will be borne by the creditor.
Distribution of Illiquid Assets:
Any price movements of the Illiquid Assets will be borne by the Scheme Creditors, who will be allocated their Individual % Claim applied to the specific balance and composition of tokens realized from Illiquid Assets.
4. Is Vauld going to provide visibility to users in the app on their actual claims?
Scheme Creditors may view their Approved Claim as of 4 July 2022 on the Vauld App or by logging into the Scheme Website.
5. What is the purpose of doing a rebalancing and can you explain with an example?
The purpose of assets rebalancing is to align the liquid asset tokens against the token composition of claims.
As of 24 April 2023, the current composition of assets in BTC, ETH, XRP and USDC is 38%, 11%, 6% and 45% respectively. As an example, assume that at the One-Time Conversion, all creditors elect to receive the Net Liquid Assets in BTC. The Company will rebalance its asset portfolio by converting all of its Net Liquid Assets to 100% in BTC at the prevailing market price.
6. When and how Scheme Creditors can do a One-Time Conversion of crypto tokens? How will this affect the overall balance owed to Vauld customers?
For purposes of the Initial RDA, the one-time conversion event (estimated to be around 1st week of July 2023) which enables Scheme Creditors to elect to receive their discounted balances in one or more of BTC, ETH, XRP and USDC only. The conversion is done at prevailing market prices, not 4 July 2022 prices. The claims of Scheme Creditors remain fixed at 4 July 2022 prices and will not increase/decrease.
Illiquid Assets and Operational Costs
1. What are the plans to recover Vauld’s illiquid assets?
For the Counterparty A receivable of USD134m, Vauld is in consultation with its legal advisors on the next steps after Counterparty A filed a Notice of Arbitration against Vauld for a possible default based on the loan documentation. Further information on the litigation cannot be disclosed due to a non-disclosure agreement (NDA) between Counterparty A and Darshan Bathija.
For the CoinLoan receivable of USD32m, the Company understands that a bankruptcy application has been filed against CoinLoan in Estonia by another of its creditors, and the Company intends to join in this proceeding, subject to further information that the Company obtains.
For the Flipvolt receivable of USD20m, there was an initial hearing before the Adjudicating Authority in mid-January 2023 which ruled that Flipvolt’s funds should remain frozen. Given that the hearing with Adjudicating Authority was not found to be in DeFi Payments’ favour, the Company filed an appeal with the Appellant Adjudicating Authority on 5 April 2023.
2. Will there be certain caps on potential settlements that might be considered if the illiquid assets prove troublesome to recover?
The SOA is intended to provide flexibility so as not to limit asset recovery efforts. At any rate, the recovery of illiquid assets is envisioned to be completed within a 36-month period, with room for short extensions of the scheme subject to full board approval being obtained. The scheme manager is also subject to these contemplated timelines.
3. What are the operational costs involved in Restructuring?
The operational costs involved in the Restructuring is expected to total USD9.4m and is broken down into the following categories: Payroll and Related Costs, Infrastructure Costs, Asset Recovery Costs, Restructuring-related Costs and Others.
Payroll and Related Costs of USD1.3m relate to salaries to maintain a small Vauld Care team and engineers for technical support, the Vauld platform and operational expenses such as tech tools and cloud subscriptions, independent validation of financial position and valuation and others.
Infrastructure Costs of USD0.9m relate to the costs for an Information and Tabulation Agent, Scheme Administrator (an independent party that will manage voting, RDA process and distributions) and fund administration costs.
Asset Recovery Costs of USD1.9m relate to the legal costs required to secure Defi Payment’s receivables due to potential disputes.
Restructuring-related Costs of USD4.3m relate to the retainer fees and success fees of Defi Payment’s financial advisor (Kroll) and legal advisor (Rajah & Tann), fees for the Independent Assessor and Creditor Representative, director and officer insurance for the New Board, fees for the Scheme Managers and Tabulation / RDA Agent.
Other Costs of USD1.1m relate to annual statutory audit and corporate secretary fees and for any other unforeseen and extra-ordinary cost provision.
1. How will the new business be funded (including start-up costs and overheads) if creditors’ assets are not utilized?
Under the proposed business restart, new customers will inject new monies to earn yield whilst simultaneously receiving recoveries under the Scheme. The proposed business restart will capitalize on existing infrastructure, technological capabilities of the Company and run under the existing cost base forecast for the Scheme. Participation in the business restart is not mandatory for Scheme Creditors but is available on an opt-in basis.
2. What are the risks associated with the proposed business restart?
Existing assets of the Company and new investments will be kept segregated. Any risks associated with DeFi strategies will only be applicable to new money being put in by new customers and does not impact Scheme Creditors. Participation in the business restart is opt in for Scheme Creditors and not mandatory.
If Scheme Creditors chose to participate and inject new money into the DeFi strategies offered under the proposed business restart, it is not without risk. However, these risks can be mitigated.
First, there is the risk of protocols being hacked. This risk is mitigated through engagement of only strategies and protocols that have undergone rigorous testing and third-party audits.
Second, non-native assets face bridged asset risks which may cause mirrored tokens to be lost in a hack of its bridge asset. This risk is mitigated through detailed due diligence and bridge analysis of the underlying technology and vulnerabilities that arise from past audits.
Third, liquidation risk arises from sudden deviations of value that can result in the liquidation of collateral. This risk can be mitigated through the usage of automated contracts that both borrow and lend the same asset to eliminate directional risk.
3. How will the Company market the proposed business restart to new customers?
Existing Scheme Creditors may receive marketing materials in respect of the New Business and may opt in to the DeFi strategies offered. No additional cost will be incurred in respect of business development or marketing.
4. Given the present intention of re-launching a viable staking/earn/yield/interest-generating business, would creditors funds be retained to earn yield?
Assets in the Scheme (Liquid or Illiquid) will be paid out via an RDA or pari-passu distribution and will not be retained to earn yield. Furthermore, the business restart will be segregated from the Scheme and will not utilise Scheme Assets.