Australian Crypto Exchange Digital Surge Rescued After $1.25M Loan From Creditors

A Brisbane-based cryptocurrency exchange will continue to operate after creditors agreed to a long-term plan from administrators to keep the business going in a bid to recover from the global collapse of FTX.

digital wave went into administration in December last year following the company’s transfer of $33 million of its assets to the global FTX platform just two weeks before that company’s dramatic collapse in November.

In a report released last week by admins KordaMentha – who also run FTX’s Australian administration – it was revealed that Digital Surge had 22,545 customers with more than 0.01 cents in their account at the time the company entered administration.

Some of the self-managed superfunds listed as creditors to the company had between $140,000 and $233,000 invested on the platform.

At the second creditors’ meeting, which lasted more than four hours in Brisbane on Tuesday, creditors finally agreed on a plan to keep Digital Surge running and repay most customers what they are owed at the over the next five years.

The proposal, from Digico and Digital Surge directors Daniel Ritter and Joshua Lehman, will see Digico lend $1.25 million to Digital Surge to keep the business going.

Customers with less than $250 in their digital wallets will be fully refunded, while others will receive 55% of their balance over the next few months. Customers will be paid in cryptocurrency or current currency depending on how much they had of each. The remainder will be repaid over the next five years in current currency from quarterly profits made by Digital Surge.

All funds obtained from the FTX administration process will also be distributed to Digital Surge creditors by the administrators.

All employees will retain their employment with rights preserved. The administrators had recommended this option as it allowed the business to continue to operate and would result in a better return of funds to creditors.

The administrative report reveals that between the bankruptcy of FTX on November 11, 2022 and the suspension of the Digital Surge platform, $6.5 million was withdrawn from the Digital Surge platform, including more than $31,000 by five employees .

Although the directors concluded that the directors had not breached any of their duties, questions were raised about the actions of one employee. The trustees discovered that an employee or someone acting on their behalf for their self-directed super fund had withdrawn $1.6 million in Australian dollars and bitcoins.

Administrators said the anonymous employee confirmed that he knew Digital Surge was exposed to FTX. They argued that the employee received a direct benefit over other creditors through the withdrawal based on this information, and that it had a “significant impact” on the company’s ability to repay customers in full.

A lawyer for the employee told administrators that he was acting in good faith and that it was not enough to know that Digital Surge had exposure to FTX to infer that the employee had reason to suspect that Digital Surge would become insolvent. . The administrators disagreed.

On why Digital Surge signed with FTX just weeks before the company collapsed, the creditors’ report reveals that the directors felt FTX was reputable based on their personal experience using the platform. form, venture capital firms behind FTX, marketing the business and because FTX held an Australian Financial Services License (AFSL).

Guardian Australia revealed last year that the regulator, the Australian Securities and Investment Commission, did not rate the suitability of FTX hold the license at the time of acquiring the license when taking over from another company.

The company’s reasoning for transferring such a large amount to FTX at the time was due to the lower transaction fees it would offer customers.

The disgraced CEO of FTX, Sam Bankman Friedpleaded not guilty to criminal charges for defrauding investors and is currently at his parents’ home in California on $250 million bail.

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