February 23, 2024

BlockFi has announced plans to liquidate its cryptocurrency lending platform to repay creditors, the company said in a New Jersey bankruptcy court filing on Friday.

Creditors have until July 28, 2023, to vote on the company’s restructuring plan if the court approves it.

Liquidation the only viable option

The bankrupt company said it concluded that a sale of the business would not create sufficient value for its creditors. BlockFi has been granted an extension to fully develop its bankruptcy plan in April. Debtors tied to the bankrupt lender also filed a revised reorganization plan and disclosure statement on Friday. BlockFi’s Chapter 11 reorganization plan will be sent to creditors, including more than 100,000 retail clients, for a vote.

The court will determine which creditors with repayment demands are eligible to vote on BlockFi’s restructuring plan. Court-given voting creditors will have until July 28, 2023, to vote for or against the plan. Alternatively, they can also opt out of the voting process. BlockFi said it has approached potential buyers in an effort to complete the sale of its digital asset platform and approximately 660,000 client accounts. However, it concluded that the sale would not create sufficient value for its creditors.

BlockFi blamed recent regulatory developments and issues as the main reason why it was unable to receive enough offers from potential buyers.

Restoration contingent on outcome of pending litigation

In a letter to creditors, BlockFi’s lawyers said their clients’ asset recovery depends on the outcome of lawsuits against other firms it claims defrauded them. These companies include crypto trading firm Alameda Research and cryptocurrency exchange FTX. Both entities were founded by Sam Bankman-Fried. In addition to these two firms, the list also includes crypto miner Core Science and crypto hedge fund Three Arrows Capital (3AC).according to blockchain Lawyers, the success or failure of lawsuits against these companies could collectively impact clients in excess of $1 billion. BlockFi states,

“For certain classes of claims, the outcome of this litigation could result in more than 90% of expected high-end recoveries. Client recoveries will increase or decrease substantially (total fluctuations in client recoveries could exceed $1 billion), depending on Can BlockFi succeed in these lawsuits.”

These developments come on the heels of major victories BlockFi client Hold cryptocurrencies in escrow, interest-free accounts. U.S. Bankruptcy Judge Michael Kaplan has reportedly allowed BlockFi to return approximately $297 million to customers operating such accounts. Judge Kaplan ruled that the customers in question were the owners of the deposits they held in the BlockFi wallet program. BlockFi’s wallet program pays no interest to clients and keeps funds separate from other funds held by the company. BlockFi froze transfers in November 2022 shortly before declaring bankruptcy as it got caught up in the vortex sparked by the FTX debacle.

Crypto companies continue to struggle

Over the past year, several cryptocurrency companies have had to file for bankruptcy. These include Alameda Research, FTX, Celsius Network, Core Scientific, Three Arrows Capital and Voyager Digital. Some troubled companies have had to go into liquidation as they struggle to raise capital and strike deals to help them emerge from bankruptcy.

U.S. cryptocurrency exchange Binance terminated an agreement with Voyager Digital to buy user accounts last month. Binance cited several regulatory issues as reasons for the termination of the agreement. Voyager then said it would be liquidated before the May 15 deadline, pending any objections.

Disclaimer: This article is for informational purposes only. It does not provide or be intended to be used as legal, tax, investment, financial or other advice.