On Tuesday, BlockFi declared its emergence from bankruptcy and announced plans to begin returning assets to customers.
This milestone was reached 11 months after BlockFi faced financial challenges during the turmoil in the crypto industry.
“BlockFi is pleased to announce that its bankruptcy plan (the “Plan”) is effective and the company has emerged from bankruptcy as of October 24, 2023 (the “Effective Date”),” said BlockFi in a media social post.
BlockFi faced liquidity issues in mid-2022 when Terra’s stablecoin collapsed. FTX helped by providing a $400 million credit line but later went bankrupt in November, affecting BlockFi. In August, a U.S. court allowed BlockFi to repay U.S.-based Wallet customers. However, U.S. customers could not withdraw at that point.
BlockFi’s exit from bankruptcy allows it to pursue assets it believes are owed by other companies, including bankrupt crypto platforms like Three Arrows Capital (also known as “3AC”) and FTX. They can also resume distributing assets to creditors and handling claims.
BlockFi emphasized that it would keep repaying customers and ensure fair distributions based on client claims for asset types and amounts.
“Further updates on timing for this initial distribution will be sent in the coming months. We are aiming to begin initial distributions in early 2024. Any subsequent distributions will be dependent on many factors, including most notably any recoveries from FTX and its affiliates,” BlockFi said.
Wallet customers should log in to the BlockFi app and request withdrawals for BlockFi’s team to process. BlockFi Interest Account (BIA) and Loan customers can anticipate initial distributions according to the bankruptcy plan, with the first ones expected in early 2024. Additional distributions will follow, but the amount distributed will hinge on BlockFi’s success in FTX bankruptcy litigation and other factors.
On September 26, Bankruptcy Judge Michael A. Kaplan gave the green light to BlockFi’s revised Chapter 11 plan.
The repayment for BlockFi’s unsecured creditors depends on the outcome of its legal battle against FTX and other bankrupt crypto firms. BlockFi submitted its liquidation plan to the bankruptcy court on November 28. It was later required to make amendments on May 12, June 28 and July 31. The plan was approved after BlockFi resolved a lengthy dispute with the creditors’ committee regarding senior management.
BlockFi has an estimated debt of up to $10 billion, owed to over 100,000 creditors, including the bankrupt crypto hedge fund Three Arrows Capital. BlockFi’s legal representation is provided by Kirkland & Ellis LLP and Haynes and Boone LLP.
During a trial on October 13, BlockFi CEO Zac Prince accused FTX and its affiliate, Alameda Research, of causing BlockFi’s bankruptcy through deceptive financial practices. He revealed that BlockFi had a substantial $1.1 billion involved with FTX.
Prince also blamed the rapid growth of the LUNA ecosystem for BlockFi’s bankruptcy, which led to a default from Three Arrows Capital.
When asked if BlockFi would have provided loans to Alameda had they known FTX customer funds were involved, Prince said, “No. That is not appropriate.”
On the other hand, Prince admitted that there was a time when BlockFi thought about selling itself to FTX to bring in more capital and boost customer confidence. FTX had proposed a deal that included a $400 million credit facility.
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