On 11 July 2025, the Singapore International Commercial Court (SICC) in Re Terraform Labs Pte Ltd [2025] SGHC (I) 4 ordered a group of creditors to pay costs to the insolvent estate of blockchain company Terraform Labs. The court found that the litigation initiated by the creditors had "knowingly and intentionally (perhaps flagrantly) breached" the SICC's earlier recognition of Terraform's Chapter 11 plan. Described as an unprecedented judgment, the ruling is a powerful reminder that breaches of recognition orders are a serious infraction and one that may carry significant cost consequences.
The decision is the latest development in the restructuring of the distressed Terraform group, which included the filing of Chapter 11 proceedings in the U.S. and their recognition in both Singapore and the BVI.
Background to the Chapter 11 Proceedings and Recognition
Terraform Labs Pte Ltd (TFL), incorporated in Singapore and majority-owned by Kwon Do Hyeong, developed the Terra blockchain ecosystem. Following the collapse of its algorithmic stablecoin (UST) in May 2022, TFL launched a new blockchain and soon faced regulatory action by the U.S. SEC. These proceedings culminated in a consent judgment in June 2024 approving a Chapter 11 liquidation plan and asset wind-down.
TFL filed for Chapter 11 on 21 January 2024. Its BVI subsidiary, TLL filed for Chapter 11 on 1 July 2024 and, due to the possible intermingling of assets, sought substantive consolidation, a U.S. mechanism allowing for estates to be combined for administration. TLL became a debtor-in-possession and remained operational under court supervision. Recognition of the Chapter 11 proceedings was sought in both Singapore and the BVI, and was granted on 31 May 2024 in Singapore, followed shortly thereafter by the BVI Court.
BVI Recognition Framework
Under BVI law, foreign insolvency proceedings may be recognised either under common law or statute. The Court of Appeal in Net International Property Ltd v Eitan Erez confirmed that common law recognition remains available, but statutory assistance must be sought under Part XIX of the Insolvency Act ("IA").
The distinction between recognition and assistance is important:
- Recognition affords a foreign officeholder standing before the BVI Court.
- Assistance enables the BVI Court to grant substantive relief in support of the foreign proceedings.
The distinction is also significant because, under the IA, statutory assistance may only be granted to foreign proceedings and insolvency officeholders from certain designated countries. As of 18 September, this list included 24 countries, in addition to the member states of the Organisation of Eastern Caribbean States (OECS)1
Section 467(3) of the IA permits a broad range of relief, including:
- Stays of proceedings,
- Restraints on the exercise of rights over assets,
- Appointment of interim receivers,
- Examination of persons connected to the debtor, and
- "Such other relief as the Court considers appropriate."
Sections 470 and 472 further empower the Court to act in aid of foreign proceedings and to authorise insolvency officers to act abroad.
The Court's exercise of these powers is guided by section 468(1), which emphasises:
- Just treatment of all claimants,
- Protection of local creditors,
- Prevention of fraud, and
- Promotion of judicial comity.
Costs Sanctions for Breach of Recognition Orders
In its costs ruling, the SICC emphasised the seriousness of violating a recognition order. The court found that the litigation was not only unauthorised but had been pursued to gain a better class ranking under the Chapter 11 plan, contrary to the protections afforded by the recognition order. The court described the litigation as a "poorly conceived and improvident tactic that should never have been initiated or pursued" and concluded the creditors "should have known they were acting to their peril and crossing into forbidden territory."
The ruling sends a strong message: recognition orders are not symbolic—they carry enforceable protections, and breaches can result in real and significant cost consequences.
Would the BVI Court Do the Same?
In my view, yes.
Proceedings for recognition and assistance under section 466 of the IA are classified as "insolvency proceedings." Rule 4(2) of the BVI Insolvency Rules confirms that the CPR applies to such proceedings, except where expressly excluded in Schedule 1. Since CPR provisions on costs are not excluded, the general costs rules, including CPR 64.6 (entitlement to costs) and CPR 64.4 (factors to consider), apply.
Moreover, the Court retains broad discretionary powers under sections 467(3)(h) and 470 to grant relief, including costs sanctions.
While there appears to be no reported BVI case where costs have been awarded against a party for breaching a recognition order, this may be due to the availability of a practical alternative: seeking the Court's permission to vary the recognition order before initiating any action. This step should be taken even where there is doubt about whether permission is strictly necessary.
Judicial Comity in Action
Judicial comity is the foundation of effective cross-border insolvency frameworks. Section 468(1)(e) of the IA makes clear that promoting comity is a key aim of the BVI Court's recognition powers. Recognition is not merely procedural—it is a commitment to mutual respect and enforcement. But respect must be coupled with enforcement: comity is undermined when orders made under it are breached without consequence.
Implications for Stakeholders
The Terraform decisions offer several key takeaways:
- Recognition orders have real consequences—including costs sanctions.
- Cross-border cooperation—especially between the U.S., BVI, and Singapore—is essential to coherent global restructurings.
- Creditors who challenge moratoria or circumvent recognition orders risk procedural defeat and adverse costs orders.
Conclusion
The Terraform case underscores the increasing maturity of cross-border insolvency practice. The Singapore Court's willingness to sanction breaches of recognition orders should be welcomed as a strong signal that such orders must be respected. The BVI Court, having already recognised the Terraform Chapter 11 proceedings, is well positioned to adopt a similarly robust approach. The case may well become a springboard for further jurisprudence on the enforcement of recognition orders and the consequences of creditor misconduct.
Conyers acted for Terraform Labs in the BVI recognition proceedings.
Footnote
1. Australia, Bahamas, Barbados, Belize, Canada, Cayman Islands, Finland, Guernsey, Guyana, Hong Kong, Ireland, Japan, Jamaica, Jersey, Member states of the OECS (Anguilla (associate member) Antigua and Barbuda, Commonwealth of Dominica, Grenada, Montserrat, Saint Kitts and Nevis and Saint Vincent and the Grenadine), Nigeria, New Zealand, Trinidad and Tobago, Turks and Caico Islands, United Kingdom and the United States.
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