 "Crypto exchange co WazirX battles liabilities, white knights yet to arrive")
Sourcing white knights, or those entities who may prevent a hostile takeover, may turn out to be an uphill task for the embattled crypto exchange WazirX.
The beleaguered platform is tied up with a series of challenges including massive liabilities, its dispute with global crypto exchange Binance, and investors losing faith as the company looks to restructure.
The company may be engaged in talks with a bunch of crypto platforms for a potential deal, sources close to the company said.
“It is prudent for any white knight who is going to take over Zettai (WazirX’s parent company) altogether to exclude itself from any existing liabilities or get indemnities in its favour against any claims by the users. The only incentives for the buyer to take over Zettai would be the assets and the user data or customers,” said Navodaya Singh Rajpurohit, Legal Partner, Coinque Consulting and founder, Pravadati Legal.
However, with the firm under moratorium, most creditors would consider moving away from the platform to other exchanges as the company undergoes restructuring.
“While an acquisition of WazirX can also benefit the white knight in many ways including entry into or strengthening its presence in Indian crypto space and access to a large user base, the aftermath of the recent cyber-attack may present some difficulties in retaining existing users,” said Sahil Arora, Partner, Saraf & Partners.
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The company, facing liabilities amounting to $546.5 million, has said it had a user base of over 16 million investors.
The company, which was among the major crypto exchanges in India, suffered a security breach in July, resulting in losing more than half of its digital assets valued at $230 million.
In September, the company said it was looking for a white knight to provide capital and pursue partnership and collaboration.
This would entail implementing revenue-generating products and mechanisms to share profit with users, tracing and recovering stolen crypto assets, and/or allowing users who need liquidity urgently to withdraw crypto assets more quickly and exit restructuring.
Another aspect that may be the bone of contention when it comes to the white knight deal for potential buyers would be the criminal and financial liability of the cyber attack.
"If there is a finding by a judicial authority or investigating agency that Zettai or Zanmai Labs is liable for the security breach after a deal is concluded, then the financial liability might come down on the company which acquired the assets or bought a stake in Zettai. However, the criminal liability would be the current directors or agents of Zettai,” Rajpurohit said.
To add to its woes is the company’s dispute with Binance.
In 2019, the global crypto platform announced that it had ‘acquired’ WazirX. However, it later stated that the acquisition was limited to an agreement to purchase some assets and intellectual property of WazirX.
Last month, Binance clarified that the company did not own or operate WazirX in the country, adding that there was no legal basis for the firm to be liable for claims made against the embattled crypto exchange.
WazirX maintains its stand against Binance’s view and adds the acquisition went through.
“For any potential acquirer, it is crucial to have a clear ownership title over shares as well as have autonomy over operational control, revenue entitlements, and the company’s decision-making. Accordingly, factual clarity on the specifics of the ongoing dispute and its resolution would be critical for a deal to be struck with any white knight,” Arora added.