Disgruntled creditors of the bankrupt cryptocurrency lending firm BlockFi have submitted a new court filing in response to the company’s latest restructuring plan. On May 12, BlockFi outlined its Chapter 11 plan of reorganization in a filing with the United States Bankruptcy Court in Trenton, New Jersey. The firm stated that selling BlockFi might not generate enough value for creditors, as it owes nearly $1.3 billion to its top 50 creditors.
In response, BlockFi creditors submitted another court filing on May 15, arguing that BlockFi deliberately took measures to delay the trial. Represented by the law firm Brown Rudnick, BlockFi creditors wrote that BlockFi sold about $240 million worth of crypto before filing for bankruptcy in late November 2022. The creditors emphasized that the crypto lender sold the assets “at the nadir,” referring to a massive market slump following the collapse of FTX.
“Liquidating nearly all domestic cryptocurrency in November 2022 was a very poor decision,” the creditors argued, suggesting that the decision cost more than $100 million in the months since. The creditors also cited “unnecessary and undesired tax consequences,” while stressing that the amount of the sale didn’t have any relation to its bankruptcy. According to the filing, selling $240 million in cryptocurrency was never rationally related to bankruptcy funding needs, as no reasonable estimate would peg the costs of the bankruptcy at $240 million.
The creditors also pointed out that BlockFi spent $22.5 million of customer money to buy a $30 million insurance policy, which occurred soon after BlockFi sold the digital assets but before filing for bankruptcy.
In their submission, the creditors accused BlockFi of giving itself a near-limitless budget, essentially immune from bankruptcy’s adversary process, to run its case as long and as contentious as it sees fit without the ‘typical milestones’ in a debtor-in-possession (DIP) or cash collateral order.
The plaintiffs called on the court to end the case as soon as possible by passing the estate assets “into the hands of new management.” The creditors again noted that such a scenario seems not to be consistent with the debtors’ case agenda.
BlockFi did not immediately respond to Cointelegraph’s request for comment. The ongoing battle between BlockFi and its creditors highlights the complexities and risks that can be present within the cryptocurrency lending industry. While some may argue that the company’s actions were deliberate and designed to delay the trial, others may view it as a cautionary tale for investors seeking high returns in an increasingly volatile market. Overall, the BlockFi bankruptcy case demonstrates the need for continued discussion and scrutiny of regulations in the fast-growing crypto space to ensure its long-term sustainability and security for investors.
Source: Cointelegraph
