The Latest Developments In Crypto Insolvency: An Update On Three Arrows

• Published date: 13 March 2024
• Subject Matter: Insolvency/Bankruptcy/Re-Structuring, Technology, Insolvency/Bankruptcy, Fin Tech
• Law Firm: Ogier
• Author: Mr Nicholas Brookes and Romauld Johnson

Our analysis of a recent court judgment in the ongoing liquidation of the high profile crypto-asset hedge fund Three Arrows Capital is by Nicholas Brookes and Romauld Johnson, part of Ogier's BVI team representing the joint liquidators.

Read our update on crypto insolvency issues from Three Arrows, which illustrates implications of the judgment including

• a reminder to creditors of the potential consequences of submitting a claim form in an insolvency proceeding
• the territorial breadth of office-holders' powers under the Insolvency Act 2003
• questions about the location of cryptoassets

The decision in Russell Crumpler and Christopher Farmer (as Joint Liquidators of Three Arrows Capital Ltd (in Liquidation)) v (1) Cheong Jun Yoong and (2) Three Arrows Capital Ltd (in Liquidation)¹ is one of the latest developments in the ongoing liquidation of the cryptoasset hedge fund, Three Arrows Capital (3AC).

In late 2022, the Liquidators of 3AC applied under ss 186 and 274A of the Insolvency Act, 2003 (IA) for directions and declaratory relief as to the beneficial ownership, and for delivery up, of certain digital assets (BVI Claim). Their application required the participation of a certain Singapore resident, Mr Cheong, who subsequently objected to the jurisdiction of the BVI Commercial Court. In December 2023, the BVI High Court dismissed Mr Cheong's jurisdictional challenge. The judgment is a reminder to creditors of the implications of submitting a claim form in an insolvency proceeding. It also highlights the territorial breadth of office-holders' powers under the Insolvency Act 2003 (IA) and raises questions about the lex situs of cryptoassets. This article considers some of the court's findings and its potential implications.

Relevant Facts

3AC was a master fund through which investments were placed via offshore and onshore feeder funds. It held a portfolio of assets informally called "DeFiance" and the feeder funds issued "Class DeFiance" shares and interests to external investors. The portfolio consisted of cryptocurrency tokens, NFTs, and contracts for future tokens or equity known as 'SAFES'² or 'SAFTS' in the name of 3AC.³ Mr Cheong managed the portfolio. He asserts that 3AC held the portfolio on trust for his benefit and issued parallel proceedings in Singapore. When he was served with the BVI Claim, Mr Cheong applied to set aside service on the grounds that Singapore was the convenient forum.

Dismissing Mr Cheong's application, Justice Mangatal found:

• ...