Liquidators in charge of failed hedge fund Three Arrows Capital (3AC) are seeking to recover about $1.3 billion from the fund’s co-founders Su Zhu and Kyle Davies, Bloomberg reported.
The news comes a year after a British Virgin Islands court ordered 3AC into liquidation.
Three Arrows Capital founder targets
Three Arrows Capital is a cryptocurrency hedge fund founded in 2018 by Su Zhu and Kyle Davies. The firm reportedly managed over $2 billion in assets at the height of its business.
Nonetheless, the company appeared to be in trouble mid-2021, with reports of significant losses in its portfolio.
In June 2022, a British Virgin Islands court ordered Three Arrows Capital to be liquidated following an application by one of its creditors.
Liquidators appointed to oversee the winding up of the company are now seeking to recover as much value as possible for creditors.
The liquidator’s claim against Zhu and Davies is based on the fact that the co-founders took on debts between May and June 2022 when the company was already insolvent.
Furthermore, the liquidators argued that the debt was part of $3 billion owed to Three Arrows creditors and that the losses incurred by the co-founders were caused by over-leveraging and failed investments in Luna tokens and other ventures.
According to Bloomberg, the liquidators believe that during the period of these investments, the company was already on the verge of bankruptcy. The liquidators are currently pursuing legal proceedings against Zhu and Davies in a court in the British Virgin Islands.
It is difficult to predict the chances of Teneo, the liquidator behind Three Arrows Capital, to recover the full $1.3 billion from the Three Arrows Capital founders, as it depends on a number of factors, such as the strength of the evidence and legal arguments presented in court, the willingness of the founders to cooperate and negotiate a solution, and the assets available for liquidation.
However, it is important to note that the purpose of liquidation proceedings is to recover as much value as possible for the bankrupt entity’s creditors and the liquidator must pursue all available avenues to maximize recovery of claims.
In this case, Teneo may also investigate whether any fraud or misconduct by the founders contributed to 3AC’s collapse and seek to recover any assets or profits gained through such conduct. Ultimately, the outcome will depend on the specific circumstances and the legal arguments presented in the case.