Digital VAs differ, including when it comes to fees

A recent judgment of the Supreme Court of Victoria demonstrates the unique challenges faced by administrators of digital trading platforms and how those challenges can contribute to the cost of the administration, especially when crypto currency is the asset traded.

“The administration of the Companies is further complicated by the parallel bankruptcy proceedings that are being conducted in the United States. It is likely that cross-border insolvency issues will arise.” Judicial Registrar Daniel Caporale.

While some will object to crypto being described as an asset the 29,234 customers of FTX Australia Pty Ltd and FTX Express Pty Ltd lured into Sam Bankman-Fried’s crypto-murk are in no doubt, as Supreme Court of Victoria judicial registrar Daniel Caporale makes clear in FTX Australia Pty Ltd and FTX Express Pty Ltd (admin apptd) [2023] VSC 451.

The judgment, delivered on Monday, August 14, 2023, deals with an application for more than $1 million in remuneration brought by the administrators of the two FTX entities for the period from their appointment on November 11 2022 to April 16, 2023.

As is made clear by Registrar Caporale, access to the digital platforms and the information they contain was lost when the administrators were appointed, making the job of dealing with potential claimants more difficult.

“Hundreds of emails have been received by the plaintiffs from customers making enquiries about their accounts,” he said.

“Those emails demonstrate that the voluntary administration of an online trading platform gives rise to different challenges as compared to the typical insolvency which largely involves trade creditors.

“Accordingly, more regular updates to creditors and customers from the plaintiffs are necessary.”

In submissions in support of the fee application administrators John Mouawad, Scott Langdon and Rahul Goyal said they “estimate that there are 29,234 separate customers that had investments in cryptocurrency or fiat that may have lost significant property in using the FTX Trading platform to buy and sell cryptocurrencies. Those customers do not fall within obvious categories and are likely to have a unique claim,” Registrar Caporale said.

Despite identifying approximately $39 million held in accounts in the name of FTX Express and approximately $3 million in the accounts of FTX Australia the KordaMentha trio have not yet been able to satisfy themselves as to who has beneficial entitlement to the monies, other than the more than $1 million they’ve generated in fees of course.

Much of the work undertaken so far has focussed on understanding the trading relationship between the companies and their parent entities, FTX Trading Ltd (‘FTX Trading’), a company incorporated and registered in Antigua and Barbuda, and IFS Group Ltd, a company having its address in the Cayman Islands.

“The Companies’ involvement with FTX Trading and their interaction with Australian users is complex and requires close and careful analysis to determine who are creditors of the Companies, the quantum of their claim and the priorities of their entitlements (if any) to the assets in the administrations,” the Registrar said.

Clearly this one could have quite a way to run. Fortunately for Mouawad, Langdon and Goyal there would seem to be enough cash in the companies’ accounts to ensure they can continue their investigations fully funded, no matter how complex the administration proves to be.