- BlockFi creditors now gets closure with partial refund of their locked funds approved.
- Overall liquidation and repayment is still dependent on legal battles with FTX and 3AC.
In the latest development, customers of defunct crypto lender BlockFi may be able to recover a part of their frozen crypto assets.
The Long Haul to Closure
According to a recent court filing, Judge Michael Kaplan has approved the firm’s liquidation and restructuring plan. The filing also confirms that BlockFi’s Chief restructuring officer Mark Renzi, is in support of the new plan. Consequently, BlockFi debtors are expected to compile a list detailing all of its creditors including the top 50 who did not have secured loans.
In November 2022, BlockFi was impacted by the implosion of now-bankrupt cryptocurrency exchange FTX and suspended withdrawals on its platform, preventing users from accessing their crypto assets. The crypto lender attributes a significant portion of its problems to FTX’s bankruptcy, including the fact that the beleaguered exchange was one of BlockFi’s biggest borrowers.
In the long run, BlockFi was forced to file for Chapter 11 bankruptcy in the United States Bankruptcy Court for the District of New Jersey. The plan at the time was for the crypto lender to restructure its operational business unit to maximize its assets for clients and affected stakeholders. BlockFi then presented its liquidation plan to the bankruptcy court on November 28 after which it discovered that it needed to revise the document and submit an updated version.
Owing to how the BlockFi proposal will affect its own restructuring efforts, the plan was condemned by FTX lawyers who felt the proposed deal was unfair to its own creditors, hence pushing for its rejection in court.
Much to the disappointment of FTX’s legal team, the court approved the new plan. However, the approval came after BlockFi’s senior management and the Creditors’ Committee reached a settlement on their dispute concerning accusations that the management ignored the warning signals from FTX before lending to the exchange.
BlockFi Creditors to Receive 35-63% of Assets
Reaching this settlement was necessary to avoid the outrageous administrative expenses that could impact negatively on the amount that BlockFi customers would get, per the court filing.
The committee is hopeful that the repayment process will commence before the end of 2023, a goal which if achieved, will make BlockFi one of the first bankrupt firms to pay customers affected by the bear market of 2022.
With Judge Kaplan’s approval, unsecured BlockFi creditors will get between 35% to 63% of the funds they are owed. Some other creditors will receive partial repayments in Bitcoin (BTC) and Ethereum (ETH).
However, this plan is largely dependent on the outcome of BlockFi’s litigation against FTX, Three Arrows Capital (3AC), and other similarly bankrupt crypto firms.
Precisely, BlockFi has a liability of between $1 billion to $10 billion. It owes three of its biggest lenders $1 billion and another $220 million to 3AC. The defunct crypto lender believes that the success of its disputes with FTX and 3AC can push creditors’ asset recovery to as high as $1 billion.
Meanwhile, FTX former Chief Executive Officer (CEO) Sam Bankman-Fried is still under scrutiny for the part he played in the implosion of the exchange. His trial is scheduled to be held next week.
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