A failed crypto project might face either zero or several battles depending upon the amount of money involved and the financing options it has employed. A bootstrapped company might apply for winding up (which requires no legal battles) whereas a venture funded or a debt-funded project might have to go through traditional bankruptcy proceedings.
Bankruptcy Proceedings
Bankruptcy Proceedings take place when a company is unable to pay its debtors because of zero income or insurmountable losses.
Usually, the proceedings first assess the assets and liabilities of the company, and depending upon the difference of the two, a plan is presented to the Bankruptcy Court or Tribunal.
- If the assets and liabilities are far different, i.e., there is very little chance of saving the company, then it is forcibly liquidated. Example: FTX Exchange
- In a few rare cases, the company is placed under a professional management, which evaluates if the company can run and generate profits in the medium to long term. Example: Vodafone Idea
- In some cases, the resolution plan also leads to selling the company to a suitable buyer, who then takes all the assets as well as liabilities of the company. Example: Ruchi Soya sold to Patanjali.
Debt Resolution
There are several debt resolution plans that banks or debtors present to the failed crypto project. They might take a haircut on the principle, reduce interest, present an alternative payment plan (say with extended period of payment), or transfer the debt book altogether to an asset reconstruction company.
DISCLAIMER: All information presented on A2Z Cryptocurrencies (https://a2zcryptocurrencies.com) is purely for informational and educational purposes and does not amount to financial advice in any way. Please consult a financial advisor before investing.
