“In February 2024, James Drury and Paul Pretlove of Interpath Advisory were appointed as joint receivers by the BVI Court over all the assets held by or on behalf of Hector DAO, including assets held within a crypto wallet, for the purpose of collecting in and preserving such assets.
In a landmark decision, on 15 July 2024, the United States Court has granted the first cross-border recognition of a Decentralised Autonomous Organisation (DAO) under Chapter 15 of the U.S. Bankruptcy Code. This groundbreaking ruling establishes a crucial precedent for the treatment of DAOs in international insolvency cases, reinforcing their legal status as entities capable of being debtors. The recognition of a DAO under Chapter 15 marks a significant moment in the evolution of digital entities and cross-border insolvency law. This decision not only resolves the question of whether a DAO can be a debtor under Chapter 15, but also signifies a progressive step towards embracing the potential of decentralised technologies within existing legal frameworks. As DAOs and their usage develops, this ruling will serve as a reference point and guide insolvency practitioners in navigating this new terrain.
The decision also carries significant implications for the recognition of foreign receiverships that are not just confined to the digital asset space, particularly given the scarcity of precedents where the US bankruptcy court has granted Chapter 15 recognition to such proceedings. The basis of Chapter 15 relief lies in the foreign representative’s pursuit of recognition for a foreign proceeding, which is characterized as a ‘collective proceeding’. Mindful of this threshold test, the Receivers have taken steps since their appointment to ensure that any order from the BVI Court clearly reflects that the receivership serves the collective interests of the HEC tokenholders. This distinction paved the way for the US Court to grant the requested Chapter 15 relief by removing any doubt that this is a collective process. It is anticipated that this will serve as a valuable legal precedent for foreign receivership proceedings in the future.”
James Drury said: “From a case perspective, crucially, the ruling resolves certain claims in the US, allowing the Receivers to now proceed with an interim distribution to the HEC tokenholders which has been their primary goal.
“Ahead of the distribution, in accordance with a BVI Court order, the Receivers are applying KYC procedures to the tokenholders utilizing a decentralised application (dApp) with inbuilt AI technology to streamline the KYC collection process. In addition to the distribution, the ruling empowers the Receivers to proceed with their investigations into the misappropriated assets of the DAO. To fund their investigations, the Receivers have put a DAO vote to the HEC community regarding the amount of the DAO’s treasury to be retained as a ‘fighting fund’. The Receivers have utilised “Snapshot” for the vote, which is an off-chain voting platform that aligns with the procedures typically taken by DAOs to govern their operations.
“Continuing with the trend of crypto firsts by Interpath, not only was the appointment over Hector DAO the first appointment of its kind to-date, making it a novel and interesting engagement in the Fintech sector, the recognition of the DAO under Chapter 15 sets further precedents. This will serve as a persuasive precedent for cases emanating from the Cayman Islands, Bermuda, the UK, and other common law jurisdictions. We expect to see more of this kind of appointment and applaud the US and BVI Courts for taking a pragmatic approach to protect stakeholders invested in a developing asset class in a developing area of law.”