Loh Cheng Lee Aaron and another v Hodlnaut Pte Ltd (Zhu Juntao and others, non-parties) [2023] SGHC 323

Case Details

• Citation: [2023] SGHC 323
• Court: General Division of the High Court
• Decision Date: 10 November 2023
• Coram: Aedit Abdullah J
• Case Number: Companies Winding Up No 94 of 2023
• Hearing Date(s): 7 August, 27 September, 16 October 2023
• Claimants / Plaintiffs: Aaron Loh Cheng Lee; Ee Meng Yen Angela
• Respondent / Defendant: Hodlnaut Pte Ltd
• Counsel for Claimants: Leo Zhen Wei Lionel, Manoj Pillay Sandrasegara, Stephanie Yeo Xiu Wen, Md Noor E Adnaan, Li Yiling Eden, Andrew Pflug, Chng Qi Yun Clarice, T Abirami and Toh Yong Xiang (WongPartnership LLP)
• Counsel for Respondent: Leonard Chua Jun Yi, Suresh s/o Damodara, Ong Ziying Clement, S M Sukhmit Singh, Darius Malachi Lim Wen Hong, Ning Jie and Lim Dao Yuan Keith (Damodara Ong LLC)
• Practice Areas: Insolvency Law; Winding up

Summary

In Loh Cheng Lee Aaron and another v Hodlnaut Pte Ltd (Zhu Juntao and others, non-parties) [2023] SGHC 323, the General Division of the High Court addressed a pivotal question in the intersection of digital assets and insolvency law: whether liabilities denominated in cryptocurrency constitute "debts" for the purposes of establishing a company’s inability to pay its debts under the Insolvency, Restructuring and Dissolution Act 2018 ("IRDA"). The case arose from a winding-up petition filed by the interim judicial managers ("IJMs") of Hodlnaut Pte Ltd ("the Company"), a cryptocurrency platform that had faced significant financial distress following the collapse of the Terra/Luna ecosystem. The petition was opposed by the Company’s directors, who sought to prioritize a restructuring proposal involving a third-party offer from Open Technology Markets Limited ("OPNX").

The central doctrinal contribution of this judgment lies in its clarification of the "cash flow insolvency" test in the context of the digital economy. The Court was tasked with determining if cryptocurrency obligations should be factored into the insolvency analysis under Section 125(1)(e) read with Section 125(2)(c) of the IRDA. The Respondent argued that because cryptocurrency is not recognized as "money" under the Payment Services Act 2019, and because it is not treated as "movable property" under certain procedural rules, it could not form the basis of a "debt" for a winding-up application. Justice Aedit Abdullah rejected these narrow interpretations, holding that the definition of "liability" under Section 2 of the IRDA—which includes "money or money’s worth"—is sufficiently broad to encompass cryptocurrency obligations.

The Court ultimately found that the Company was cash flow insolvent. Applying the broad test established by the Court of Appeal in Sun Electric Power Pte Ltd v RCMA Asia Pte Ltd [2021] 2 SLR 478 ("Sun Electric"), the Court determined that the Company’s current assets were insufficient to meet its current liabilities, including its substantial cryptocurrency debts, as and when they fell due. The judgment emphasizes that the statutory framework for insolvency is intended to be functional rather than formalistic; if a company cannot meet its obligations to return assets of value (whether fiat or digital), it is insolvent within the meaning of the Act.

This decision has broader significance for the Singapore legal landscape as it reinforces the jurisdiction's readiness to apply traditional insolvency principles to novel asset classes. By confirming that cryptocurrency liabilities are "debts" for winding-up purposes, the Court provided much-needed certainty to creditors of distressed digital asset platforms. The ruling also underscores the high threshold required for directors to successfully oppose a winding-up petition in favor of speculative restructuring plans, particularly when the company’s financial position has deteriorated significantly during interim judicial management.

Timeline of Events

1. 29 August 2022: The Company is placed under interim judicial management following financial difficulties.
2. 24 April 2023: The Court directs the interim judicial managers (Aaron Loh Cheng Lee and Ee Meng Yen Angela) to present a winding-up petition for the Company.
3. 7 August 2023: Substantive hearing commences. The Court expresses concerns regarding the conduct of the Company's directors (Zhu Juntao and Simon Eric Lee) in relation to a last-minute moratorium application and a restructuring proposal from OPNX.
4. 7 August 2023: The Court orders the directors to file affidavits explaining their actions regarding the OPNX offer and the timing of the moratorium application. The winding-up application is adjourned to allow the IJMs to evaluate the OPNX offer.
5. 27 September 2023: Further hearing on the winding-up petition and the status of the restructuring proposal.
6. 16 October 2023: Final substantive hearing of the winding-up application (CWU 94/2023). The directors continue to oppose the winding up, arguing that cryptocurrency liabilities do not constitute "debts."
7. 10 November 2023: Justice Aedit Abdullah delivers the judgment, granting the application to wind up the Company and appointing the IJMs as liquidators.

What Were the Facts of This Case?

Hodlnaut Pte Ltd ("the Company") operated as a cryptocurrency platform in Singapore, holding and managing digital asset funds for a global base of creditors. The Company’s business model involved accepting cryptocurrency deposits from users and deploying those assets to generate returns. However, the Company suffered catastrophic losses, leading to its placement under interim judicial management on 29 August 2022. The Claimants, Aaron Loh Cheng Lee and Ee Meng Yen Angela, were appointed as the interim judicial managers ("IJMs").

By April 2023, the financial outlook for the Company remained bleak. On 24 April 2023, the Court directed the IJMs to file a winding-up petition. This direction was issued alongside a concurrent application to discharge the interim judicial management order, as the prospects for a successful judicial management appeared minimal. The IJMs subsequently filed Companies Winding Up No 94 of 2023.

The winding-up process was complicated by the intervention of the Company’s directors, Zhu Juntao and Simon Eric Lee. The directors opposed the winding up and instead filed an application for a three-month moratorium pursuant to Section 210(1) of the Companies Act 1967. This moratorium application was premised on an "indicative non-binding term sheet" (the "OPNX Offer") from Open Technology Markets Limited ("OPNX"). The OPNX Offer suggested a potential restructuring that might provide better recovery for creditors than a terminal liquidation.

During the hearing on 7 August 2023, the Court scrutinized the timing and bona fides of the directors' actions. The moratorium application had been filed at the "eleventh hour," which the Court noted with concern. Furthermore, there were allegations regarding the directors' conduct in negotiating the OPNX Offer without fully involving the IJMs. The Court required the directors to file affidavits to explain their conduct and the circumstances surrounding the OPNX proposal. To ensure a fair assessment, the Court adjourned the winding-up application to allow the IJMs to formally consider whether the OPNX Offer was a viable alternative to liquidation. The interim judicial management order was extended during this period.

The core factual dispute centered on the Company's solvency. The IJMs maintained that the Company was hopelessly insolvent, with liabilities far exceeding assets. A significant portion of these liabilities consisted of obligations to return cryptocurrency to users. The directors, however, raised a novel legal defense: they argued that these cryptocurrency obligations did not qualify as "debts" under the IRDA. Their argument was built on the premise that "debt" must refer to a liability to pay a liquidated sum of money. Since cryptocurrency is not legal tender and is not defined as "money" under the Payment Services Act 2019, the directors contended that the Company could not be found "unable to pay its debts" based on these digital asset obligations.

The evidence before the Court included the Company's financial records, which showed a massive shortfall in assets compared to the cryptocurrency deposits owed to creditors. The IJMs argued that even if the OPNX Offer were considered, it was too speculative and lacked the necessary certainty to justify further delaying the winding up. The creditors' interests, according to the IJMs, were best served by an immediate transition to liquidation to preserve what remained of the Company's assets and to allow for a formal investigation into the Company's affairs.

What Were the Key Legal Issues?

The primary legal issues before the Court involved the interpretation of the insolvency triggers under the Insolvency, Restructuring and Dissolution Act 2018 in the context of digital assets. The issues can be summarized as follows:

• The Definition of "Debt" under the IRDA: Whether cryptocurrency funds held by a company for its creditors constitute "debts" within the meaning of Section 125(1)(e) read with Section 125(2)(c) of the IRDA. This required the Court to determine if the term "debt" is restricted to liquidated fiat currency claims or if it extends to obligations involving "money's worth."
• The Application of the Cash Flow Insolvency Test: Whether the Company was "unable to pay its debts" under the test established in Sun Electric. This involved an assessment of whether the Company’s current assets could meet its current liabilities (including cryptocurrency obligations) within a 12-month timeframe.
• The Interaction between Section 125(2)(a) and Section 125(2)(c) IRDA: Whether the requirements for a statutory demand under Section 125(2)(a)—which refers to a "sum exceeding $15,000"—limit the scope of what can be considered a debt under the general cash flow test in Section 125(2)(c).
• Judicial Discretion in Winding Up: Whether the Court should exercise its residual discretion to refuse a winding-up order in favor of a proposed restructuring (the OPNX Offer), even if the statutory grounds for insolvency were met.
• Appointment of Liquidators: Whether the IJMs should be appointed as liquidators or if alternative practitioners should be appointed, as requested by the directors.

How Did the Court Analyse the Issues?

The Court’s analysis began with the fundamental question of whether cryptocurrency obligations are "debts" for the purpose of a winding-up application. Justice Aedit Abdullah rejected the Respondent's narrow construction of the term. The Respondent had argued that because cryptocurrency is not "money" under the Payment Services Act 2019, it cannot constitute a "debt." The Court found this argument to be a non-sequitur. The definition of "liability" in Section 2 of the IRDA is explicitly broad, encompassing "a liability to pay money or money’s worth" (at [9]). The Court reasoned that even if cryptocurrency is not "money" in the sense of legal tender, it certainly constitutes "money's worth" because it has an objective economic value that can be quantified in fiat currency.

The Court further addressed the Respondent's reliance on Section 125(2)(a) of the IRDA. That section provides a presumption of insolvency if a company fails to comply with a statutory demand for a "sum" exceeding $15,000. The Respondent argued that the use of the word "sum" implied that only fiat currency debts could trigger insolvency. Justice Aedit Abdullah clarified that Section 125(2)(a) is merely one way to prove insolvency via a presumption. It does not define the universe of what constitutes a "debt" for the broader cash flow test under Section 125(2)(c). The Court held:

"The Company is indeed unable to pay its debts. Its obligation to pay cryptocurrency to its creditors count as debts owed by the Company and are relevant in determining whether the Company is insolvent." (at [6])

In applying the Sun Electric test, the Court emphasized that the cash flow insolvency analysis is "a broad one" (at [8]). The Court must consider whether the company’s current assets exceed its current liabilities such that all debts can be met as and when they fall due within a 12-month timeframe. The Court noted that the Company had already been placed in interim judicial management on the basis that it was "probably insolvent." Since that time, the financial position had not improved; rather, it had crystallized into a state of clear insolvency. The Company’s inability to return the cryptocurrency deposits to its users as they fell due was sufficient evidence of cash flow insolvency.

The Respondent attempted to distinguish the present case from Algorand Foundation Ltd v Three Arrows Capital Pte Ltd (HC/CWU 246/2022). In Three Arrows, the debt was based on a specific contractual obligation to return a set amount of tokens, which had been quantified. The Respondent argued that without such a quantified "sum," there was no debt. The Court rejected this distinction, noting that the lack of a prior court judgment or a formal statutory demand did not prevent the Court from recognizing the underlying obligation as a debt for the purposes of Section 125(2)(c). The Court observed that the Company's liabilities were not merely contingent or prospective; they were present obligations to return assets of value which the Company simply did not possess.

Regarding the OPNX Offer and the directors' request for a moratorium, the Court found no basis to exercise its discretion to stay the winding up. The Court noted that the OPNX Offer was "indicative" and "non-binding." In the face of clear insolvency and a history of unsuccessful attempts to restructure during the IJM period, the Court held that the interests of the creditors were better served by a winding up. The Court was particularly critical of the directors' conduct, noting the "eleventh hour" filing of the moratorium application and the lack of transparency regarding the OPNX negotiations. This conduct weighed against the exercise of any judicial discretion in favor of the directors' proposals.

Finally, the Court addressed the appointment of liquidators. The directors had requested that different practitioners be appointed instead of the IJMs. The Court dismissed this request, stating that there was no evidence of any conflict of interest or lack of independence on the part of the IJMs. Following the standard practice, the Court authorized the IJMs to transition into the role of liquidators to ensure continuity in the administration of the Company's estate.

What Was the Outcome?

The High Court granted the application to wind up Hodlnaut Pte Ltd. The operative order was stated concisely by Justice Aedit Abdullah:

"I grant the application to wind up the Company." (at [5])

The Court made the following consequential orders:

• The Company was ordered to be wound up under the provisions of the Insolvency, Restructuring and Dissolution Act 2018.
• Aaron Loh Cheng Lee and Ee Meng Yen Angela, the former interim judicial managers, were appointed as the joint and several liquidators of the Company.
• The interim judicial managers were authorized to appoint solicitors in their capacity as liquidators to assist in the winding-up process (at [20]).
• The application for a moratorium by the directors was effectively dismissed or rendered moot by the granting of the winding-up order.

The Court found that the Company was unable to pay its debts within the meaning of Section 125(1)(e) of the IRDA. This finding was based on the inclusion of cryptocurrency liabilities as "debts" and the application of the cash flow insolvency test. The Court rejected the directors' arguments that the cryptocurrency obligations should be excluded from the insolvency calculation. Furthermore, the Court declined to exercise its discretion to allow the OPNX restructuring proposal to proceed, finding it too speculative and non-binding to override the statutory grounds for winding up.

The costs of the application were not specifically detailed in the extracted judgment, but the Court's decision to appoint the IJMs as liquidators ensured that the costs of the liquidation would be borne out of the Company's assets in accordance with the standard priority of payments in insolvency.

Why Does This Case Matter?

This case is a landmark decision in Singapore's insolvency jurisprudence, particularly regarding the treatment of digital assets. Its significance can be analyzed across three main dimensions: the definition of debt, the application of insolvency tests to crypto-firms, and the limits of director-led restructuring in the face of insolvency.

First, the judgment provides a definitive answer to whether cryptocurrency liabilities can trigger a winding up. By interpreting "liability" under the IRDA to include "money's worth" and confirming that cryptocurrency falls within this ambit, the Court has closed a potential loophole that distressed crypto-platforms might have used to evade liquidation. This aligns Singapore with other leading common law jurisdictions that have begun to recognize digital assets as property or as having the characteristics of property in a commercial context. Practitioners can now confidently advise creditors that a failure to return digital assets can form the basis of an insolvency petition, provided the value can be quantified.

Second, the case reinforces the "broad" nature of the cash flow insolvency test from Sun Electric. The Court's refusal to be bogged down by the technicalities of the Payment Services Act 2019 or the Rules of Court 2021 demonstrates a purposive approach to insolvency law. The Court’s focus was on the economic reality: the Company owed assets of significant value (S$92 million was referenced in the context of the OPNX offer) and could not meet those obligations. This functional approach ensures that the IRDA remains robust and adaptable to technological changes in the financial sector.

Third, the case serves as a cautionary tale for directors of insolvent companies. The Court’s skepticism toward the "eleventh hour" moratorium application and the non-binding OPNX Offer highlights that restructuring proposals must have a degree of certainty and transparency to be taken seriously by the Court. Directors cannot use speculative offers as a shield to delay the inevitable liquidation of a company that is clearly cash flow insolvent. The decision to appoint the IJMs as liquidators despite the directors' objections also underscores the Court's preference for continuity and its trust in court-appointed officers who have already gained a deep understanding of the company's distressed affairs.

Finally, the judgment contributes to Singapore's reputation as a sophisticated hub for digital asset litigation. By applying traditional insolvency principles to the "crypto-winter" fallout, the High Court has demonstrated that the existing legal framework is capable of resolving complex disputes in the digital economy without the need for radical legislative intervention. This provides a stable and predictable environment for both investors and digital asset service providers operating in Singapore.

Practice Pointers

• Quantifying Crypto Liabilities: When filing a winding-up petition based on cryptocurrency obligations, practitioners should ensure that the liabilities are clearly quantified in fiat currency terms to satisfy the "money's worth" requirement under Section 2 of the IRDA.
• Relying on Section 125(2)(c): While a statutory demand under Section 125(2)(a) is a common trigger, practitioners should remember that the general cash flow test under Section 125(2)(c) is broader and can be proven through other evidence of a company's inability to meet its obligations, including admissions of insolvency or financial reports.
• Timing of Restructuring Proposals: Restructuring offers (like the OPNX Offer) must be presented with sufficient detail and binding commitment to persuade a court to delay a winding up. Speculative or "indicative" term sheets filed late in the proceedings are unlikely to succeed.
• Director Conduct: Directors must act with transparency when negotiating third-party offers during an IJM or JM period. Failure to involve the court-appointed managers can lead to judicial skepticism regarding the bona fides of the proposal.
• Continuity of Office-Holders: There is a strong judicial preference for appointing IJMs as liquidators. Parties seeking to appoint alternative liquidators must provide compelling evidence of a conflict of interest or specific reasons why the current IJMs are unsuitable.
• Broad Interpretation of "Money's Worth": Do not rely on narrow definitions of "money" in regulatory statutes (like the Payment Services Act) to argue against the existence of a debt in an insolvency context. The IRDA definition of liability is the governing standard.

Subsequent Treatment

As of the date of this analysis, Loh Cheng Lee Aaron and another v Hodlnaut Pte Ltd stands as a significant precedent in the General Division of the High Court for the proposition that cryptocurrency obligations constitute "debts" for insolvency purposes. It follows the trajectory set by the Court of Appeal in Sun Electric regarding the broad application of the cash flow insolvency test. While the specific facts regarding the OPNX offer are unique to the Company, the ratio regarding the definition of "debt" under the IRDA is likely to be followed in future cases involving distressed digital asset exchanges and platforms.

Legislation Referenced

• Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed), Sections 2, 125(1)(e), 125(2)(a), 125(2)(c)
• Companies Act 1967 (2020 Rev Ed), Section 210(1)
• Payment Services Act 2019 (2020 Rev Ed), Section 2
• Rules of Court 2021, Order 22 Rule 1

Cases Cited

• Applied: Sun Electric Power Pte Ltd v RCMA Asia Pte Ltd [2021] 2 SLR 478
• Distinguished: Algorand Foundation Ltd v Three Arrows Capital Pte Ltd (HC/CWU 246/2022) (30 March 2023)

Source Documents

• Original Judgment PDF
• eLitigation Case Page