Loh Cheng Lee Aaron and another v Hodlnaut Pte Ltd (in compulsory liquidation) [2024] SGHC 257

Case Details

• Citation: [2024] SGHC 257
• Court: General Division of the High Court of the Republic of Singapore
• Decision Date: 11 October 2024
• Coram: Aidan Xu @ Aedit Abdullah J
• Case Number: Companies Winding Up No 94 of 2023; Summons No 1917 of 2024
• Hearing Date(s): 17 September 2024
• Claimants / Plaintiffs: Aaron Loh Cheng Lee; Ee Meng Yen Angela (as liquidators of Hodlnaut Pte Ltd)
• Respondent / Defendant: Hodlnaut Pte Ltd (in compulsory liquidation)
• Counsel for Claimants: Leo Zhen Wei Lionel, Li Yiling Eden, T Abirami (WongPartnership LLP)
• Practice Areas: Insolvency Law; Winding up; Liquidator powers

Summary

The judgment in Loh Cheng Lee Aaron and another v Hodlnaut Pte Ltd (in compulsory liquidation) [2024] SGHC 257 addresses a critical procedural and substantive junction in the winding up of a major cryptocurrency platform. The matter arose from an application by the joint and several liquidators of Hodlnaut Pte Ltd (the "Company") seeking court authorisation under section 144(1)(e) of the Insolvency, Restructuring and Dissolution Act 2018 ("IRDA") to commence an originating application for directions. These directions were sought to resolve fundamental uncertainties regarding the ownership of digital assets within the Hodlnaut Group and the identification of the Company's true creditors.

The primary legal contribution of this decision lies in its clarification of the scope of section 144(1)(e) of the IRDA. The Court was tasked with determining whether this provision—which permits a liquidator to "bring or defend any action or other legal proceeding in the name and on behalf of the company" with court or committee of inspection authorisation—is restricted to instances where the liquidator acts without legal representation. This question was prompted by earlier judicial observations that suggested a narrower reading. Justice Aedit Abdullah rejected such a limitation, holding that section 144(1)(e) and section 144(1)(f) (which governs the appointment of solicitors) serve distinct purposes and that authorisation under the former is required regardless of whether counsel is engaged.

Substantively, the case highlights the immense difficulties liquidators face when dealing with cryptocurrency entities characterized by "poor maintenance of accounting and financial records." The liquidators challenged the assertions made by the Company’s directors regarding the segregation of assets between the Singapore entity and its Hong Kong subsidiary. The Court’s decision to grant authorisation underscores the necessity of judicial intervention when a liquidator’s proposed course of action is likely to be contested or where the underlying factual matrix is too opaque for the liquidator to proceed unilaterally without risk of personal liability or subsequent challenge.

Ultimately, the High Court granted the authorisation, permitting the liquidators to seek directions under section 145(3) of the IRDA. This result ensures that the complex determination of asset ownership and creditor status—affecting thousands of users and significant digital holdings—will be conducted under the Court's supervision, providing a robust framework for the eventual distribution of the liquidation estate. The judgment serves as a vital precedent for the administration of digital asset insolvencies in Singapore, reinforcing the Court's role in guiding liquidators through legally and factually fraught landscapes.

Timeline of Events

1. 22 May 2023: The then interim judicial managers of Hodlnaut Pte Ltd applied to wind up the Company, signaling the transition from restructuring efforts to terminal liquidation.
2. 10 November 2023: The General Division of the High Court granted a winding up order against the Company. Mr Aaron Loh Cheng Lee and Ms Ee Meng Yen Angela were appointed as the joint and several liquidators.
3. Post-November 2023: The liquidators conducted internal investigations into the Company's affairs, uncovering significant discrepancies in the accounting records and the claims made by the Company's directors.
4. 30 July 2024: The liquidators filed Summons No 1917 of 2024, seeking authorisation under section 144(1)(e) of the IRDA to commence an originating application for directions.
5. 17 September 2024: The substantive hearing for the liquidators' application was held before Justice Aedit Abdullah.
6. 11 October 2024: The Court delivered its judgment, granting the liquidators the authorisation prayed for and clarifying the statutory interpretation of the IRDA.

What Were the Facts of This Case?

Hodlnaut Pte Ltd (the "Company") is a Singapore-incorporated private company that operated a cryptocurrency trading platform. The platform's primary value proposition allowed users to deposit various digital assets to earn interest. To facilitate its global operations, the Company utilized a wholly-owned subsidiary, Hodlnaut Trading Limited ("Hodlnaut HK"), which is currently under creditors' voluntary liquidation in Hong Kong. Together, these entities formed the "Hodlnaut Group."

The collapse of the platform led to the Company being placed under interim judicial management in early 2023. During those proceedings, the Company's directors, Mr Simon Eric Lee and Mr Zhu Juntao (the "Directors"), maintained a specific narrative regarding the structure of the Group's assets and liabilities. They alleged that:

• All digital assets deployed on Centralized Exchanges (CEXs) were assets belonging to the Singapore Company.
• All digital assets deployed on Decentralized Finance (DeFi) Protocols were assets belonging to Hodlnaut HK.
• Singapore-based users were exclusively creditors of the Singapore Company.
• Foreign users were exclusively creditors of Hodlnaut HK.

However, the interim judicial managers, and subsequently the liquidators, encountered severe obstacles in verifying these claims. The Court noted that there was "poor maintenance of the Company’s accounting and financial records" and a "lack of basic accounting records." This state of affairs made it nearly impossible to substantiate the Directors' assertions through traditional audit trails. The liquidators' own investigations led them to a contrary conclusion: that all digital assets within the Hodlnaut Group actually belonged to the Singapore Company, and consequently, all users of the Group—regardless of their geographic location—constituted creditors of the Singapore Company.

The liquidators contended that the evidence did not support the Directors' "segregation" theory. They pointed to the fact that the Company and Hodlnaut HK appeared to have operated as a single economic unit with commingled assets. The difficulty was compounded by the nature of digital assets, where transfers between CEXs and DeFi protocols can occur rapidly and often without the clear documentation found in traditional banking. If the liquidators were to proceed on their own view without court directions, they faced the risk of significant litigation from disgruntled creditors (either Singaporean or foreign) who might be disadvantaged by the liquidators' classification of assets and liabilities.

Furthermore, the liquidators identified that the determination of these two issues—(a) which digital assets belong to the Company and (b) which users constitute creditors—was a prerequisite for any meaningful progress in the liquidation. Without resolving these "threshold" questions, the liquidators could not adjudicate proofs of debt or distribute the remaining assets. Given the likelihood that any decision they made would be contested by the Directors or various creditor groups, the liquidators sought the Court's imprimatur to bring an originating application for directions under section 145(3) of the IRDA. This necessitated the prior authorisation under section 144(1)(e), leading to the present summons.

What Were the Key Legal Issues?

The application presented two primary issues for the Court's determination, one of statutory interpretation and one of factual exercise of discretion.

• The Scope of Section 144(1)(e) of the IRDA: The Court had to decide whether this provision, which requires authorisation to "bring or defend any action or other legal proceeding," applies only when a liquidator is acting pro se (without legal representation). This issue arose because of a footnote in a previous decision, Re Kirkham International Pte Ltd (in compulsory liquidation) [2023] 5 SLR 635, which suggested that s 144(1)(e) might only contemplate proceedings where no solicitors are appointed.
• The Merits of Granting Authorisation: Assuming the Court had the power to grant authorisation even where counsel was involved, the second issue was whether the liquidators of Hodlnaut had demonstrated sufficient grounds to justify the commencement of an originating application for directions. This involved assessing the prospects of success, the impact on the estate, and whether the liquidators were acting reasonably in seeking judicial guidance rather than making the determination themselves.

These issues matter because they define the boundary between a liquidator's administrative autonomy and the Court's supervisory jurisdiction. If the narrow interpretation of s 144(1)(e) prevailed, liquidators might have lacked a clear statutory path to seek authorisation for represented litigation, potentially complicating the recovery of costs from the estate.

How Did the Court Analyse the Issues?

The Interpretation of Section 144(1)(e)

Justice Aedit Abdullah began by examining the text of section 144(1) of the IRDA. The section provides that a liquidator may, after authorisation by either the Court or the committee of inspection, exercise several powers, including:

(e) bring or defend any action or other legal proceeding in the name and on behalf of the company;
(f) appoint a solicitor to assist the liquidator in the duties of the liquidator;

The Court noted that in Re Kirkham International Pte Ltd (in compulsory liquidation) [2023] 5 SLR 635 ("Re Kirkham"), the judge had observed at [14] that s 144(1)(e) "appears to contemplate the liquidator bringing or defending any action or legal proceeding... without any legal representation." This was based on the existence of s 144(1)(f), which specifically addresses the appointment of solicitors. The Re Kirkham court reasoned that if a liquidator is represented, the power to bring an action might be subsumed under the power to appoint a solicitor to "assist" in duties.

Justice Aedit Abdullah respectfully disagreed with this narrow reading. He held that the scope of s 144(1)(e) "goes beyond situations where the liquidator contemplates bringing or defending any action or legal representation" (at [16]). The Court adopted the view that s 144(1)(e) and s 144(1)(f) are distinct and serve different regulatory purposes. Section 144(1)(f) is concerned with the engagement of professional legal services, whereas s 144(1)(e) is concerned with the commencement or defense of the litigation itself.

The Court relied on the reasoning in [2024] SGHC 130 ("Re Mingda Holding"), where it was clarified at [41]–[42] that even if a liquidator fails to obtain authorisation to appoint a solicitor under s 144(1)(f), the appointment is not necessarily invalid, though the liquidator might face personal liability for costs. Justice Aedit Abdullah extended this logic, noting that the "duties" mentioned in s 144(1)(f) include the general administration of the winding up, not just litigation. Therefore, the power to bring an action (s 144(1)(e)) remains a standalone power requiring authorisation, independent of whether the liquidator chooses to use a solicitor to carry out that action.

The Application of Section 145(3) and the Test for Authorisation

The liquidators intended to use the s 144(1)(e) authorisation to file an application for directions under section 145(3) of the IRDA. The Court observed that s 145(3) is the appropriate vehicle when a liquidator’s decision-making is "likely to be contested" or "subject to criticism," citing Yap Cheng Ghee Bob... v Envy Asset Management Pte Ltd [2024] 4 SLR 746 at [30].

To determine whether authorisation should be granted, the Court applied the factors established in Lavrentiadis, Lavrentios v Dextra Partners Pte Ltd [2023] 5 SLR 1288 and Re Seshadri Rajagopalan [2021] 3 SLR 1344. These factors include:

• Whether the proposed proceedings have a reasonable prospect of success.
• The likely impact on the company's assets and creditors' interests.
• Whether the liquidator has a genuine belief in the merits.
• Whether there are reasonable grounds for the proposed course of action.

In applying these to Hodlnaut, the Court found the liquidators' position compelling. The Directors' claims regarding asset segregation were described as "difficult to verify" due to the "poor state of the Company’s financial records" (at [35]). The Court noted that the liquidators had conducted significant internal work and concluded that the Directors' positions were not supported by the available evidence.

Crucially, the Court recognized that if the liquidators made a unilateral determination on these issues, they would almost certainly be sued by the "losing" group of creditors. By seeking directions under s 145(3), the liquidators were adopting a "neutral" and "protective" stance that would result in a binding judicial determination, thereby saving the estate from multiple fragmented lawsuits later. The Court also referenced Re PCChip Computer Manufacturer (S) Pte Ltd [2001] 2 SLR(R) 180, where the court had previously granted substantive orders to resolve similar creditor-status disputes in a liquidation context.

What Was the Outcome?

The High Court granted the liquidators' application in Summons No 1917 of 2024. The Court was satisfied that the liquidators had met the threshold for authorisation under section 144(1)(e) of the IRDA. The operative order permitted the liquidators to commence an originating application for directions under section 145(3) of the IRDA to resolve the following two questions:

• Which digital assets within the Hodlnaut Group belong to the Company?
• Which users of the Hodlnaut Group constitute creditors of the Company?

The Court's decision was summarized in the final paragraph of the judgment:

I was satisfied that the court’s authorisation of the application for directions was warranted in the circumstances and granted the authorisation as prayed for. (at [39])

The effect of this outcome is that the liquidators are now legally protected in bringing the matter before the Court for a substantive determination. This ensures that the costs of the upcoming originating application will be properly borne by the Company's estate, as the liquidators have obtained the requisite prior judicial approval. The judgment also effectively clears the procedural path for other liquidators in Singapore who find themselves in similar positions of factual uncertainty, confirming that they can and should seek court authorisation for represented litigation when the circumstances warrant it.

Why Does This Case Matter?

This case is a significant addition to Singapore's insolvency jurisprudence, particularly regarding the interpretation of the IRDA and the management of cryptocurrency-related failures. Its importance can be viewed through three lenses: statutory clarity, the role of the liquidator, and the evolution of digital asset law.

First, the judgment provides much-needed clarity on the relationship between sections 144(1)(e) and 144(1)(f) of the IRDA. By explicitly rejecting the narrow interpretation suggested in Re Kirkham, Justice Aedit Abdullah has ensured that the statutory requirement for authorisation to litigate is not rendered redundant or confusing when solicitors are involved. This is a "practitioner-friendly" ruling that aligns the law with the reality of modern insolvency practice, where liquidators almost invariably require legal counsel for complex proceedings. It confirms that the power to litigate is a corporate power of the company (exercised by the liquidator) that requires specific oversight, distinct from the administrative power to hire professionals.

Second, the case reinforces the utility of section 145(3) as a shield for liquidators. In the "crypto-winter" era, many platforms have collapsed leaving behind a mess of commingled wallets, offshore subsidiaries, and incomplete ledgers. This judgment encourages liquidators to be proactive in seeking judicial directions when faced with such "opaque" factual matrices. Rather than risking personal liability or a "free-for-all" among creditors, liquidators can use the s 144/s 145 mechanism to bring these disputes into a controlled, transparent judicial forum. This promotes the pari passu principle by ensuring that the pool of assets and the class of creditors are defined correctly before any distribution occurs.

Third, the case highlights the specific evidentiary challenges of cryptocurrency liquidations. The Court's acknowledgment of the "lack of basic accounting records" and the difficulty of verifying transfers between CEXs and DeFi protocols reflects a growing judicial sophistication in handling digital asset disputes. The decision signals that the Singapore courts will not allow a lack of traditional documentation to paralyze a liquidation; instead, they will provide the necessary procedural authorizations to allow liquidators to reconstruct the financial reality of the company through the court process.

Finally, the decision places Singapore at the forefront of insolvency hubs capable of handling complex, cross-border digital asset failures. By providing a clear procedural roadmap for liquidators to resolve disputes between local and foreign users and between parent and subsidiary asset pools, the High Court has demonstrated that the IRDA is a flexible and robust tool for modern financial crises.

Practice Pointers

• Do Not Rely on Footnotes for Statutory Interpretation: Practitioners should note that the Court explicitly moved away from the obiter observation in Re Kirkham. Always seek authorisation under s 144(1)(e) before commencing litigation, even if solicitors are already appointed under s 144(1)(f).
• Document the "Likelihood of Contest": When applying for authorisation to seek directions under s 145(3), liquidators should clearly document why their own determination is likely to be challenged. In this case, the conflicting views of the Directors and the poor state of records provided the necessary "reasonable grounds."
• Address the Lavrentiadis Factors Early: Applications for authorisation should proactively address the four factors: prospects of success, impact on assets, liquidator’s belief, and reasonableness. A well-supported affidavit detailing internal investigations will be crucial.
• Neutrality in Directions: When seeking directions on creditor status, liquidators should maintain a neutral stance where possible, framing the application as a necessary step for the "proper administration" of the winding up rather than an adversarial battle.
• Interplay with Foreign Liquidations: In cases involving subsidiaries (like Hodlnaut HK), liquidators should be prepared to explain the relationship between the Singapore proceedings and any foreign insolvency processes, particularly regarding asset ownership.
• Costs Protection: Obtaining s 144(1)(e) authorisation is the primary way for a liquidator to ensure that the costs of litigation are treated as an expense of the winding up, protecting the liquidator from personal cost orders.

Subsequent Treatment

As a relatively recent judgment delivered in October 2024, Loh Cheng Lee Aaron v Hodlnaut [2024] SGHC 257 stands as a current authority on the interpretation of section 144(1)(e) of the IRDA. It effectively supersedes the narrower interpretive suggestion found in Re Kirkham International Pte Ltd regarding the necessity of legal representation for that specific provision. It has been cited as a clarifying authority on the distinction between the power to litigate and the power to appoint solicitors.

Legislation Referenced

• Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed), sections 144(1)(e), 144(1)(f), 144(1)(f)(ii), 144(2), 145, 145(3)
• Companies Act (Cap 50, 1994 Rev Ed), section 273(3)

Cases Cited

• Considered: Re Mingda Holding Pte Ltd and another matter [2024] SGHC 130
• Considered: Re Kirkham International Pte Ltd (in compulsory liquidation) [2023] 5 SLR 635
• Applied: Yap Cheng Ghee Bob (in his capacity as the joint and several interim judicial manager of Envy Asset Management Pte Ltd) and others v Envy Asset Management Pte Ltd and other matters [2024] 4 SLR 746
• Referred to: Lavrentiadis, Lavrentios v Dextra Partners Pte Ltd (in liquidation) and another matter [2023] 5 SLR 1288
• Referred to: Re Seshadri Rajagopalan and another and another matter [2021] 3 SLR 1344
• Referred to: Re PCChip Computer Manufacturer (S) Pte Ltd (in compulsory liquidation) [2001] 2 SLR(R) 180

Source Documents

• Original judgment PDF: Download (PDF, hosted on Legal Wires CDN)
• Official eLitigation record: View on elitigation.sg