On 8 March 2023, the Grand Court of the Cayman Islands appointed Joint Provisional Liquidators (“JPLs”) over Atom Holdings (the “Company”), a Cayman incorporated holding company for the Atom Group, which operated a cryptocurrency exchange via an online platform known as AAX (Atom Asset Exchange).
According to an AAX August 2022 press release, AAX had a spot trading volume of USD$57.2 million in July 2022 and boasted over 3 million users in over 160 countries. However, in November 2022 (shortly after the crypto exchange FTX filed for bankruptcy in the United States), AAX abruptly ceased operations and failed to process thousands of outstanding customer withdrawal requests. The directors and management of the Company resigned or otherwise ceased to communicate with customers and the online platform was no longer accessible.
On 6 March 2023, a number of retail customers of AAX (the “Petitioners”) petitioned the Cayman Islands Court for the winding up of the Company on the basis that it was unable to pay its debts and also that it was just and equitable for the Company to be wound up. The Petitioners also applied for the urgent appointment of JPLs over the Company for the purpose of protecting and preserving the Company’s assets pending the determination of the winding up petition.
On 8 March 2023, the Court appointed JPLs over the Company with the following powers, among others:
- to take any steps in their discretion for the protection and preservation of the Company’s assets and to prevent the dissipation or misuse of the Company’s assets and those of its subsidiaries;
- to investigate and report on the affairs of the Company and its subsidiaries within and outside of the Cayman Islands, including in Seychelles, Singapore, Hong Kong, and Malta;
- to identify and take possession of the assets of the Company;
- to examine individuals on oath or otherwise if the JPLs consider it expedient for the purpose of protecting the Company’s assets;
- to take control of subsidiaries of the Company and to manage the affairs of such subsidiaries; and
- to take steps necessary to freeze or preserve property held by any person against which the Company has a claim and where there is a risk of dissipation.
The Court’s appointment of JPLs in this matter demonstrates that the Cayman Islands Court continues to be adept at dealing with applications for the preservation of assets on an urgent basis. The appointment of provisional liquidators in such cases remains a key tool for the prevention of further dissipation or misuse of a company’s assets and provides scope for a thorough investigation into the affairs of the company.
The appointment of JPLs also presents scope for recognition of the Cayman appointed officeholders in other jurisdictions. Cayman Islands provisional liquidations have previously been accepted as “foreign proceedings” under Chapter 15 of the US Bankruptcy Code and elsewhere as a matter of private international law. The JPLs of the Company in this case have, in fact, recently sought Chapter 15 recognition in the United States Bankruptcy Court in the Southern District of Florida.
With the so-called “crypto winter” being not quite over, it remains to be seen whether the Cayman Court will be faced with similar applications in respect of other digital asset exchanges or crypto-related businesses in the coming months (for a round-up of legal tools available in crypto-related disputes more generally see our summary here). In the meantime, litigants can rest assured that the Court has once again demonstrated its ability to effectively address urgent applications for the preservation of assets pending the determination of winding up proceedings.
Conyers have successfully obtained similar relief in many other cases before the Cayman Islands courts and have also assisted with obtaining recognition in multiple jurisdictions on behalf of officeholders. Please reach out to the authors or other members of the Conyers team for further guidance.