60,000 Australian crypto accounts in limbo across two exchanges in administration

As the crypto crunch continues to take its toll on companies in the space following the collapse of FTX, there are now 60,000 Australian customers affected by the fall of two exchanges - Brisbane-based Digital Surge and the Australian subsidiary of Sam Bankman-Fried's bankrupt behemoth.

In an update today, the voluntary administrators of FTX Australia Pty Ltd and FTX Express Pty Ltd said their highest priority was to obtain the data necessary to determine the individual positions of affected customers.

"Customers have told us that confirming their financial position is critical," said administrator Scott Langdon from KordaMentha, who earlier this month met in the US with the restructuring advisors for the 102 FTX companies in Chapter 11 proceedings in the United States Bankruptcy Court for the District of Delaware.

"We believe we now have the process and relationships with the FTX Debtors in place to get the data we need as soon as reasonably possible and to make sure that the interests of the nearly 30,000 customers of the Australian FTX companies are fairly represented in the Chapter 11 process."

Langdon said while productive communications with the FTX debtors were vital to the orderly execution of the administrations of the Australian FTX companies, the scale of this matter indicated it would take a long time to resolve.

"I need to emphasise this is an incredibly complex matter that is going to take a significant amount of time to work through," said Langdon, who is handling the matter along with fellow KordaMentha administrators John Mouawad and Rahul Goyal since they were appointed on 11 November.

"We face similar challenges in Australia as the FTX Debtors do globally, theirs being on a much bigger scale.

"Both the KordaMentha team and the FTX Debtors are facing an enormous task and we all need to be as thorough and careful as possible."

The parties agreed to meet periodically to facilitate sharing information so the administrators can monitor and advocate for Australian customers and stay abreast of the global situation.

The same firm - and indeed two of the same professionals in Scott Langdon and John Mouawad, alongside David Johnstone - were appointed this week to handle the voluntary administration of another exchange platform, Digital Surge.

Digital Surge was established in 2017 and currently services 30,000 Australian customers. The company offers access to more than 300 cryptocurrencies through its technology platform.

The directors of Digital Surge made the decision to appoint KordaMentha on 7 December to protect the interests of customers and creditors, and have also put forward a rescue package including $1 million of their own money and a promise to use all profits over the next five years to be credited into customer accounts.

As a consequence of the administration, deposits and withdrawals remain suspended and customers will be unable to trade digital assets on Digital Surge’s platform.

Langdon said he was very pleased with the cooperative and collaborative approach taken by the directors to understand Digital Surge’s financial position and to secure fiat and digital assets.

He also advised Digital Surge customers their interests were the administrators’ highest priority.

"We fully appreciate the uncertainty the voluntary administration will create. We will proactively and regularly communicate with customers to ensure they are fully informed on the progress of the administration,” he said.

The directors have commenced working with stakeholders to prepare a rescue package. The administrators anticipate this will be in the form of a deed of company arrangement (DOCA), which all creditors will have an opportunity to consider in due course.

The rescue plan proposed by Digital Surge directors, which will not go ahead of the company enters liquidation, will also prioritise paying balances of less than $250 in full.

"The aim and purpose is to provide an opportunity for creditors to be made whole over time, and preserve as much as possible of their digital holdings," said Digital Surge CEO Dan Rutter.

"There’s no denying this has been an extremely difficult and upsetting time for everyone in the cryptocurrency sector. We have always operated with our users’ best interests at heart, including the decision to enter this process.

"We have established a highly collaborative working relationship with KordaMentha and users will be kept updated throughout the process."