Defunct crypto lender BlockFi has secured the approval of the U.S. Bankruptcy Court in New Jersey for its liquidation plan. The news is a long-awaited development for its customers, who have been expecting repayment since last year.
The firm filed its first liquidation plan to the bankruptcy court on November 28 last year, saying it would “focus on recovering all obligations owed to BlockFi by counterparties.” However, a dispute with the creditors’ committee forced BlockFi to submit amended plans on May 12, June 28 and July 31.
The company secured Judge Michael Kaplan’s approval for their third Chapter 11 plan on Monday, September 25.
“BlockFi’s mission through this process has been to maximize recoveries for our creditors, and conditional approval of our Disclosure Statement moves us one step closer to accomplishing that goal,” Mark Renzi, BlockFi’s chief restructuring officer, said.
“We are confident that our Plan provides the best path to expeditiously return crypto to our clients and we strongly urge BlockFi’s clients to vote to accept it.”
The company owes up to $10 billion to more than 100,000 creditors, including $1 billion to its three major creditors and $220 million to Three Arrows Capital. According to court documents, some creditors are entitled to receive varying amounts of partial repayment.
However, the amount that will be repaid to unsecured creditors will largely depend on the outcome of BlockFi’s legal battle. A recent report indicates that creditors without collateral may be able to get up to 35 – 63 percent of what they are owed, and some may even receive partial payments in either Bitcoin or Ethereum.
BlockFi’s bankruptcy plan is objected to by several oppositions, including the U.S. Securities and Exchange Commission (SEC), FTX and Three Arrows Capital. The court has also received a request from BlockFi creditors asking to appoint a new management firm to oversee BlockFi’s bankruptcy plan, fearing misallocation of funds.
The now-bankrupt lending platform attributes its failure to the collapse of FTX, another major crypto firm. Both companies used to be partners, with BlockFi signing a term sheet with FTX to secure a $250 million revolving line of credit. However, BlockFi’s creditors’ committee suspects that BlockFi’s bankruptcy is more likely to be a case of irresponsible fund management rather than just a case of FTX contagion.
Considering the close relationship between the company, many suspected that Prince had prior knowledge of FTX’s monetary difficulties. Some creditors claimed that Prince had ignored warnings from BlockFi’s risk management team and asked the risk team to “get comfortable” with exposures to FTX and its sister company, Alameda Research, which ended up playing a role in BlockFi’s downfall.
BlockFi contended that FTX and Alameda engaged in a fraudulent scheme to deceitfully persuade BlockFi into lending more than $1 billion worth of digital assets that were deposited on the BlockFi platform to Alameda Research.
After its bankruptcy, BlockFi explained that repaying its customers depended on its efforts to receive some money back from FTX and Alameda. As a result, FTX opposes BlockFi’s bankruptcy plan, claiming that its proposals are an abuse of bankruptcy rules.
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