Crypto Restructuring: Singapore Court Recognises Administrative Convenience Class

In Re Zipmex Pte Ltd and other matters [2023] SGHC 88, the Singapore High Court imported into the Singapore restructuring regime the US concept of an "administrative convenience class" in a scheme voting exercise. This concept allows debtors to obtain an approval from a large number of low value creditors without those creditors being involved in the voting exercise. This reduces the administrative burden on restructuring entities. The decision is pragmatic and shows willingness on the part of the Singapore courts to read flexibility into the Singapore restructuring regime when dealing with crypto debtors.

Facts

The Zipmex group operates a cryptocurrency platform on which various cryptocurrencies are traded. In the scheme voting exercise, the scheme creditors for two of the group entities voted in two classes: "Vendor Creditors" and "Customer Creditors". Within the "Customer Creditors" class, the applicants created an "Administrative Convenience Class" which was a separate class of Customer Creditors comprising nearly 70,000 customers with assets below US$5,000 in value.¹ 

Members of the Administrative Convenience Class were by default excluded from the voting exercise unless they indicated their desire to participate in it. In exchange for being excluded, the members received the same benefits under the scheme as the other Customer Creditors: full access to their withheld assets following the restructuring.² 

Recognition of Administrative Convenience Class

In its decision to approve the Administrative Convenience Class, the Singapore High Court looked to US precedent. The concept of an administrative convenience class arises from the US Bankruptcy Code³, which permits the proponent of a plan to designate a separate class "as reasonable and necessary for administrative convenience" for all unsecured claims less than a specified dollar amount. The Code had codified an existing court practice of allowing debtors to put small claims into a separate class to be paid in full, which would then relieve the administrative burden of soliciting the consent from those creditors for the plan.⁴ 

The Singapore High Court recognised that the US approach "illustrate[d]…that some compromise of strict right and equitableness is sometimes required for the sake of efficacy and feasibility".⁵ Here, the court reasoned that "[a] poll of all 70,000 or so creditors would not be workable for the applicants, at least in a reasonable amount of time and at reasonable cost".⁶

Having established that the Administrative Convenience Class was reasonably necessary in the circumstances, the court then took a broad reading of section 210 of the Companies Act 1967 and section 71 of the Insolvency, Restructuring and Dissolution Act 2018 to conclude it had the discretion to "redefine the majority required for approval".⁷ Thus, the court permitted the Administrative Convenience Class.

Discussion

Debtors looking to use this tool need to be mindful that the use of an administrative convenience class requires careful formulation to "ensure that there is no undue prejudice" on the class of creditors. The Singapore High Court here suggested that at a minimum, there needs to be some "quid pro quo" for the deemed consent from the administrative convenience class. An example of "quid pro quo" is full payment, as was the case here. The court noted that the mechanism to allow the class of creditors to still vote if they indicated their desire to participate further strengthened the debtor’s case of no prejudice.⁸

This decision is significant as it recognised an important tool in the Singapore regime and signals the willingness of Singapore courts to facilitate crypto restructurings.

_{1 Re Zipmex at 4.
2 Id.
3 See s1122(b). 
4 Re Zipmex at 5-7.
5 Id at 11.
6 Id.
7 Id at 13.
8 Id at 12.} 

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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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