HectorDAO, a decentralized autonomous organization, has taken the step of filing for Chapter 15 bankruptcy in the United States after facing a series of market collapses and hacks that have drained the community’s funds.
As per the filing made on June 17 by Interpath Advisory, a firm appointed by the court to oversee bankruptcy proceedings and restructuring, HectorDAO’s financial woes can be attributed to three main factors: the collapse of the Terra network in May 2022, the downfall of the Multichain protocol, and a hack that targeted the Hector treasury.
The filing also mentioned that an investigation is ongoing to determine if the hack that occurred on January 16, resulting in the loss of $2.7 million from HectorDAO, was an inside job orchestrated by former treasury managers of the DAO.
HectorDAO’s turbulent journey began in 2022 with the collapse of Terra’s ecosystem, leading to a substantial loss of $16.4 million in treasury assets. Despite this setback, HectorDAO carried on with its operations until July 17, 2023.
On July 15, 2023, the members of HectorDAO were faced with a critical decision: either move the decentralized organization to a different blockchain and rebrand the project or liquidate all assets and close down the organization. Following a vote in accordance with HIP-42, 83% of DAO members chose to liquidate the organization.
Following the decision to liquidate, a committee was formed to manage the distribution of remaining assets. However, before the assets could be distributed, HectorDAO fell victim to a $2.7 million exploit. This incident led to accusations of gross negligence and potential involvement in the hack against the management team.
In response, the Hector community demanded that a neutral party, Interpath Advisory, be entrusted with control of the remaining funds for fair distribution.
Chapter 15 bankruptcy filings provide a way for foreign entities or entities with investors from various international jurisdictions to seek bankruptcy protection in U.S. courts. It does not automatically reorganize an entity’s holdings or restructure its debt but serves as a means for resolving such matters within the U.S. legal system.