Herbert Smith Freehills to act for individual defendants in US$950 million clawback case brought by FTX Bankruptcy Estate

A defendant group has appointed international law firm Herbert Smith Freehills to defend against clawback claims totalling US$950 million made by the FTX Bankruptcy Estate.

The international team advising these defendants is led by Herbert Smith Freehills Prolegis’ Director Daniel Chia in Singapore and Herbert Smith Freehills partner Peter Behmke in New York.

The defendant group comprises individuals and an executive associated with Mirana Corp. The claims allege that these defendants’ VIP status on the FTX exchange allowed them to pressure FTX employees to fulfil withdrawal requests in advance of the bankruptcy filing in preference to other customers.

“This is a fast-developing aspect of bankruptcy law as it applies to cryptocurrency structures, companies and customers,” said Mr. Behmke. “While different classes of investors and creditors are clearly understood in traditional bankruptcy proceedings, the speed and global digital structure of the cryptocurrency industry, the as yet undefined nature of cryptocurrency as an asset class, and the use of computer algorithms to allegedly prefer one class of creditors over another add additional complexity to this case.”

The case is FTX Trading Ltd., 22-11068, in the US Bankruptcy Court for the District of Delaware.

Key Contacts

Daniel Chia
Daniel Chia
Director, Singapore
+65 68121363
Jonathan Tang
Jonathan Tang
Director, Singapore
+65 68121365

Appeal Court clarifies that solvent foreign liquidators may be recognised in Singapore as “Foreign Proceedings” under the model law

Singapore’s highest court has definitively held that foreign insolvency, restructuring or liquidation proceedings concerning solvent companies should be recognised in Singapore (Re Ascentra Holdings, Inc (in official liquidation) v SPGK Pte Ltd [2023] SGCA 32), overturning a first instance decision taking the contrary view.

The Singapore Court of Appeal accepted the first appellant’s (“Ascentra“) submission that voluntary liquidation is a “foreign proceeding” under the UNCITRAL Model Law on Cross-Border Insolvency (“Model Law“) adopted by Singapore through the Third Schedule of the Insolvency, Restructuring and Dissolution Act 2018 (“Act“). 

In doing so, the Court followed developed consensus also reflected in recent US Bankruptcy Court (Southern District of New York) authorities, and recognised that in the context of liquidations, there is value to a co-ordinated approach to the liquidation of companies with transnational operations irrespective of the solvency of the company in question.

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Keeping the door open: Hong Kong Court reaffirms commitment to mutual recognition of insolvency proceedings with Mainland China

Two recent cases, Re Guangdong Overseas Construction Corporation [2023] HKCFI 1340 (the GOCC Case) and Re Trinity International Brands Limited [2023] HKCFI 1581 (the Trinity Case), reaffirm the commitment of the Hong Kong Court to cooperating with the Mainland Court in terms of mutual recognition and assistance of insolvency proceedings.

These cases show that the Hong Kong Court will look at the Mainland-Hong Kong mutual recognition arrangement for insolvency proceedings (the Cooperation Mechanism, which we summarised here), regardless of whether the case falls within its scope (as in the Trinity Case) or outside its scope (as in the GOCC Case).

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Good things take time: Parliamentary Joint Committee delivers report on Australia’s corporate insolvency framework

The Parliamentary Joint Committee on Corporations and Financial Services (the Committee) has delivered its report following an inquiry into the “effectiveness of Australia’s corporate insolvency laws in protecting and maximising value for the benefit of all interested parties and the economy”.[1]

The Committee has recommended that, as soon as practicable, the Australian government should commission a comprehensive and independent review of Australia’s insolvency law, encompassing both corporate and personal insolvency law.

The Committee considered Australia’s corporate insolvency system to be “overly complex, difficult to access, and creates unnecessary cost and confusion for both debtors and creditors”.[2]

It made a number of recommendations to guide the structure, scope and process of a comprehensive review.

In addition, the Committee has also suggested a number of areas for reform ahead of the comprehensive review, to address “clear and broadly recognised failings in the current law.”[3]

As discussed in our earlier note on the launch of the inquiry, previous restructuring and insolvency law reform efforts over the last decade have been restrained by a ‘piecemeal’ approach, with a focus on specific issues or ‘cherry picked’ features, rather than considering the system as a whole. The recognition by the Committee that fulsome review is needed aligns with broad consensus across the restructuring and insolvency market that Australia’s insolvency framework requires in-depth and principled review.

A full list of twenty-eight recommendations made by the Committee can be found in the Appendix.

The government is yet to publicly respond to the recommendations of the Committee.

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Arbitration of Insolvency Disputes: The view from the Australian Courts

Two recent judgments from different Australian courts have considered circumstances in which insolvency disputes can (or cannot) be arbitrated in accordance with pre-existing arbitration agreements. In particular, the decisions address the following two key issues:

  • when certain insolvency claims can be arbitrated; and
  • when a third party can participate in arbitral proceedings either claiming or defending ‘through or under’ a party to the arbitration agreement.

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Clearing up the cloud? Perhaps partly, as the Court of Final Appeal affirms the approach to dismissing bankruptcy proceedings in favour of the parties’ agreed forum

If a debt arises from a contract that contains an exclusive jurisdiction clause (EJC) in favour of a foreign court, how will the Hong Kong court deal with a bankruptcy petition based on that debt? A highly anticipated judgment from Hong Kong’s highest court suggests that the bankruptcy petition will likely be dismissed, and that the foreign EJC will be given effect. But, as we will discuss below, the Court seems to leave other possibilities open, depending on the facts in a particular case.

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TMA submissions on corporate insolvency in Australia

Herbert Smith Freehills’ restructuring, turnaround and insolvency team has supported the Turnaround Management Association of Australia (the TMA) in preparing the TMA’s submissions (TMA Submissions) to the Parliamentary Joint Committee on Corporations and Financial Services (the Committee) for the purposes of its inquiry into corporate insolvency in Australia.

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BTI v Sequana – Key UK Supreme Court insolvency ruling clarifies stance on creditor duties

The Supreme Court of the United Kingdom (the Supreme Court)(UK) has delivered the much anticipated decision in BTI 2014 LLC v Sequana SA [2022] UKSC 25 confirming the existence, content and timing of the duty of directors to have regard to creditors where a company is insolvent. Whilst a UK decision, it is likely to be influential in other common law jurisdictions, such as Australia, Hong Kong, Singapore and New Zealand where similar duties apply.

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