Crucial Multichain Winding Up Ordered by Singapore High Court
For many who suffered losses in the significant 2023 Multichain hack, the path to potential recovery has been unclear. A recent ruling from the Singapore High Court offers a crucial step forward, ordering the Multichain winding up, a legal process that could pave the way for victims to reclaim some of their lost assets.
Sonic Labs Lawsuit Paves the Way
The legal action that led to this development was initiated by Sonic Labs, formerly known as the Fantom Foundation. Frustrated by the lack of cooperation from the Multichain Foundation’s former personnel following the devastating hack, Sonic Labs felt compelled to pursue a Sonic Labs lawsuit to seek accountability and recovery. Their efforts culminated in a significant victory in the Singapore Supreme Court on May 9.
Justice Kwek Mean Luck granted Sonic Labs’ request, declaring the Multichain Foundation bankrupt and authorizing the appointment of liquidators. Michael Kong, CEO of Sonic Labs, stated that the lawsuit was a necessary measure due to the former Multichain team being ‘completely uncooperative’ and hiding from affected parties. This legal approach forces a formal process where assets, if any can be found, can be managed and potentially returned to victims.
What Happened During the Multichain Hack?
In July 2023, the Multichain cross-chain protocol experienced unusual and large outflows of assets. This event was later confirmed to be a hack, resulting in substantial losses across various blockchain networks where Multichain operated. Affected chains included Fantom, Ethereum, BNB, Cronos, and Polygon.
Estimates from blockchain security firms and Fantom indicated that the total losses across all chains amounted to at least $210 million. Sonic Labs itself reported losses of $122 million of its funds due to breaches of contract and alleged fraudulent misrepresentations by Multichain.
The Role of Singapore High Court Crypto Rulings
The decision by the Singapore High Court crypto cases like this highlight the increasing role of traditional legal systems in addressing issues within the decentralized finance space. The court had previously issued a default judgment in January 2024 in favor of Sonic Labs regarding their claims for breach of contract and losses.
Leveraging this legal win, Sonic Labs petitioned the court in March 2024 to initiate the winding-up process. This is equivalent to a Chapter 7 bankruptcy proceeding in the United States, designed to liquidate a company’s assets and distribute them to creditors. The court’s latest ruling grants this petition, moving the process forward.
The Path to Multichain Hack Recovery
With the winding-up order granted, the focus now shifts to the liquidators appointed by the court. KPMG, a global audit, tax, and advisory firm, has been tasked with overseeing the bankruptcy proceedings of the Multichain Foundation. Their role involves identifying, securing, and potentially recovering assets belonging to the foundation.
This process is crucial for any potential Multichain hack recovery for victims. The liquidators will work to trace assets, investigate the circumstances surrounding the hack and the foundation’s collapse, and initiate legal proceedings if necessary to reclaim funds. Michael Kong noted that the liquidators can now collaborate with other parties involved to begin the complex process of trying to acquire funds that could eventually be returned to users if these legal efforts are successful.
Understanding Crypto Bankruptcy and Winding Up
The concept of Crypto bankruptcy or winding up applies when a legal entity associated with a crypto project becomes insolvent or is dissolved through court order. In this case, the Multichain Foundation, a registered entity, is being subjected to a formal winding-up process under Singaporean law.
This legal mechanism provides a structured way to deal with the remaining assets and liabilities of a defunct entity. It ensures that creditors (in this case, the hack victims) have a legal avenue to lodge claims and potentially receive a distribution from any recovered assets, overseen by independent liquidators like those from KPMG.
The Multichain Foundation had already ceased operations in July 2024 (Note: The original text stated July 2024, but the hack was July 2023 and the shutdown was around that time or later in 2023, potentially a typo in the source. Assuming the shutdown followed the CEO’s detention and hack aftermath in late 2023 or early 2024) citing a lack of operational funds and following the detention of its CEO, known as Zhaojun, by Chinese police. The winding-up order formalizes the dissolution process.
What This Means for Other Victims
While the initial lawsuit and winding-up petition were brought by Sonic Labs, the legal victory is intended to benefit other victims of the Multichain hack as well. Sonic Labs previously indicated that their legal action aimed to establish a precedent and forge a path for other affected parties to lodge their own claims for losses through the formal liquidation process.
The appointment of liquidators provides a central point of contact and a legal framework for all creditors to register their claims. However, the success of the recovery process ultimately depends on the liquidators’ ability to locate and secure assets belonging to the Multichain Foundation, which can be a challenging task in cases involving hacks and international jurisdictions.
Conclusion: A Step Towards Accountability
The Singapore High Court’s order for the Multichain winding up represents a significant development for the victims of the 2023 hack. By granting the motion brought by Sonic Labs, the court has initiated a formal legal process overseen by KPMG liquidators aimed at recovering and distributing lost funds. While the path to full recovery remains uncertain and potentially lengthy, this ruling provides a necessary legal framework and a degree of hope for those impacted, demonstrating that legal avenues can be pursued in the wake of major crypto incidents like the Multichain hack.
