Auros & Interpath: A 99 Day Success Story
During a provisional liquidation, whilst the company reorganises its affairs, the power to carry on the company’s business may vest in the provisional liquidator, subject to the powers granted under the court order.
In this case Auros was a trading entity undertaking algorithmic trading and providing market making services. Critically, Auros relied on crypto exchanges, along with its proprietary platform, to conduct its trading.
James Drury and Charlotte Caulfield of Interpath were appointed as light touch provisional liquidators (JPLs) and, as set out in the orders obtained from the BVI Court, it was always anticipated that Auros would continue trading with the day-to-day control of the company remaining with Auros’ management. The JPLs would then independently oversee that Auros’ assets were being preserved, and creditors’ interests protected, whilst the restructuring options were pursued.
The court approved arrangement with the in-situ directors was formalised by way of an insolvency protocol appended to the appointment orders. The purpose of the insolvency protocol was to ensure the efficient administration of the provisional liquidations through the division of the duties of the JPLs and Auros management, termed “Authorised Managers”.
Underscoring the concept of a “light touch” provisional liquidation is the understanding that the JPLs do not displace management, who have the skills required to trade on the company; however, the JPLs do have a role to play by overseeing the actions taken by the company during the provisional liquidation.
In these circumstances, in order to discharge their supervisory duties, the JPLs prioritised an assessment of Auros’ trading systems to firstly understand Auros’ ordinary course business dealings and secondly, whether trading could and should recommence (the Trading Review).
By understanding the ordinary course business dealings (business as usual) of Auros and its risk environment, the JPLs were able to properly delegate trading to the Authorised Managers. As prescribed by the insolvency protocol, the JPLs were not appointed to scrutinize every transaction and trade placed by Auros, which at the height of trading involved thousands of automated transactions being placed every minute.
Due to Interpath’s understanding of crypto assets the Trading Review was able to be completed expeditiously. The result of the Trading Review was that the JPLs understood Auros’ BAU and were able to gain comfort regarding Auros’ trading systems and controls. Overarchingly following the Trading Review it was clear that the ongoing suspension of trading was having a detrimental impact to Auros’ solvency, and the wider purpose of the process, which was to facilitate a restructuring.
The JPLs determined, in consultation with the Authorised Managers, that a staged and limited recommencement of trading would be important to the success of the restructuring.
The benefits to the resumption of trading were perceived to be:
With due regard to the benefits, the JPLs were nonetheless cognisant that any interaction with the exchanges has its risks, as was emphasised by the collapse of FTX. Although as Auros’ trading strategy relies on interacting with crypto exchanges, especially in relation to its market-making services, and with other crypto intermediaries, it was not possible for Auros to keep its assets in self custody and to generate revenue.
Critically it was the JPLs’ view that a recommencement of trading was in furtherance of the restructuring and therefore it was in the best interests of Auros creditor group. As a result, the JPLs worked with the Authorised Managers to develop a daily Key Performance Indicators Report which covered both trading performance and key trading risks.
During this time there was a constant dialogue between the Authorised Managers and the JPLs which involved an ongoing reassessment of the capital being deployed, trading limits, exchange tiering and monitoring of the crypto ecosystem, through the use of bots and other tools.
Following the recommencement of trading, creditors expressed concern over Auros’ trading due to the uncertainty of the contagion risk in the crypto ecosystem. These concerns ultimately led to certain of the creditors insisting that trading was halted.
Whilst this position was in divergence to the general position of the creditor group which supported Auros’ restructuring efforts, it highlights the fluid nature of the provisional liquidation which requires constant reassessment of the chosen strategy. In situations like this, it is open to provisional liquidators to apply to court to seek directions, which is what ultimately the step that the JPLs took.
Conclusion
As compared to most BVI provisional liquidations which have historically been of holding companies, asset owning special purpose vehicles and debt issuing entities, the Auros restructuring involved a trading entity – and a trading entity in a market that trades 24/7. In this case study, trading, particularly the trading of crypto currency / tokens in the wake of the FTX collapse, presented additional risks and complexities.
It was important that the Insolvency Practitioners involved were equipped to understand these risks to ensure that a commercial approach was taken so that the restructuring was not hamstrung by suspension of trading.
The collaborative and transparent approach taken by the JPLs balanced the interests of the stakeholders and was in keeping with the designation of a light touch appointment.
