HectorDAO Initiates Chapter 15 Bankruptcy Filing in the US

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Key takeaways:

  • The decentralized autonomous organization HectorDAO filed for Chapter 15 bankruptcy in the US after a string of cyberattacks and market failures depleted the community’s finances.
  • When Terra’s ecosystem collapsed in 2022, HectorDAO’s treasury holdings suffered a significant $16.4 million loss.

The decentralized autonomous organization HectorDAO filed for Chapter 15 bankruptcy in the US after a string of cyberattacks and market failures depleted the community’s finances.

According to a June 17 filing from Interpath Advisory, a court-appointed company that specializes in bankruptcy stewardship and reorganization, the primary causes of HectorDAO’s current financial situation are threefold: the failure of the Multichain protocol, the hack that affected the Hector treasury, and the collapse of the Terra network in May 2022.

Interpath Advisory stated in the filing that it was still looking into the possibility that the attack on January 16, which caused $2.7 million in funds to be taken out of HectorDAO, was an inside job carried out by former treasury managers of the DAO.

When Terra’s ecosystem collapsed in 2022, HectorDAO’s treasury holdings suffered a significant $16.4 million loss. This marked the beginning of the decentralized community’s problems. HectorDAO members persevered in their regular operations until July 17, 2023, more than a year after the setback.

The HectorDAO community members must decide by July 15, 2023, whether to move the decentralized organization to a new blockchain and rename the project or sell off all its assets and close down. After two days, 83% of DAO members cast votes in favor of the HIP-42 decision to dissolve the DAO.

As soon as the vote was held, the decentralized community’s governing body formed a committee to manage the allocation and liquidation of the remaining assets. 

Nevertheless, HectorDAO experienced a $2.7 million exploit just before the assets were supposed to be divided among investors. The decentralized organization’s members claimed they were unable to contact the liquidation committee after the events of January 16.

The DAO members then accused the management group of being involved in the hack and acting carelessly. Finally, the Hector community insisted that Interpath Advisory, an impartial third party, be given authority over the remaining monies.

Foreign corporations or entities having investors in other international jurisdictions may petition for bankruptcy under Chapter 15 in the US court system.

The filing of Chapter 15 allows corporate entities, organizations, and concerned investors a way to resolve their legal issues in US courts; it does not, by itself, reorganize the holdings of a business or restructure debt.

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