HectorDAO, a decentralized autonomous organization, has filed for Chapter 15 bankruptcy in the United States following a series of market collapses and hacks that drained the community of funds.

According to the June 17 filing from Interpath Advisory, a court-appointed firm specializing in bankruptcy stewardship and reorganization, HectorDAO’s current financial condition is mainly due to three factors: the collapse of the Terra network in May 2022, the collapse of the Multichain protocol , and a hack impacting the Hector treasury.

In the filing, Interpath Advisory noted that it was still investigating whether the January 16 hack, which resulted in $2.7 million in funds being drained from HectorDAO, was an inside job committed by former managers of the DAO’s treasury.

HectorDAO files for Chapter 15 bankruptcy in the US image 0 A portion of the Chapter 15 filing outlining Interpath Advisory’s responsibilities as the receiver in this case. Source: CourtListener

HectorDAO's troubled history

The decentralized community’s troubles began in 2022 with the collapse of Terra’s ecosystem, which inflicted a hefty $16.4 million loss on HectorDAO’s treasury assets. Despite the setback, members of HectorDAO continued normal operations for over a year, until July 17, 2023.

On July 15, 2023, the HectorDAO community members faced a choice: migrate the decentralized organization to a different blockchain and rebrand the project or liquidate all assets and shutter the organization. Two days later, 83% of DAO members voted to liquidate the DAO as per the HIP-42 vote.

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Immediately following the vote, the decentralized community’s governing body established a committee to handle the liquidation and distribution of the remaining assets. 

However, as the assets were set to be distributed among investors, HectorDAO suffered a $2.7 million exploit . Members of the decentralized organization alleged that following the Jan. 16 incident, contact with the liquidation committee could not be established.

This led to the DAO members accusing the management team of gross negligence and potential involvement in the hack. Ultimately, the Hector community demanded that control of the remaining funds be  entrusted to a neutral party  — Interpath Advisory.

What is Chapter 15?

Chapter 15 bankruptcy filings allow foreign entities or entities with investors across international jurisdictions to file for bankruptcy proceedings in the United States court system.

The Chapter 15 filing does not, in and of itself, reorganize the holdings of an entity or restructure debt — it merely gives corporate entities, organizations, and the investors involved an avenue to settle these matters in U.S. courts.

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