BlockFi is planning to liquidate its crypto lending platform in a bid to repay its creditors, a move revealed in a recent New Jersey bankruptcy court document. This news comes after the debtors associated with the troubled crypto lender were given more time to solidify their bankruptcy plan in late April. The updated plan and disclosure statement were filed on Friday, meeting the deadline previously agreed upon.
On June 12, 2023, the court will decide which creditors with repayment claims are eligible to vote on BlockFi’s restructuring plan. Creditors granted voting rights by the court will then have until July 28, 2023, to either support or reject the plan or opt-out entirely. Approximately 100,000 BlockFi customers are counted among these creditors.
One significant aspect highlighted by BlockFi’s lawyers in a letter to creditors is that their clients’ asset recovery is dependent on the outcome of lawsuits against firms they allege defrauded them, including FTX, Alameda, and Three Arrows Capital. According to BlockFi, should they win these litigations, prospective high-end recoveries exceeding 90% for certain classes of claims may be achievable. This would mean substantial fluctuations in client recoveries, potentially exceeding $1 billion.
In a recent victory for BlockFi customers who had crypto in custodial, non-interest-bearing accounts, a judge ruled that around $300 million in digital assets could be returned to those customers. The company initially froze transfers in early November of last year, later declaring bankruptcy on November 28, 2022. Since then, the unraveling process of another firm caught in the collapse of FTX has been ongoing.
While some might view BlockFi’s decision to liquidate its platform as a step towards resolving its financial woes and repaying creditors, others may argue that the company’s reliance on litigation outcomes adds an element of uncertainty. The possibility of massive swings in client recoveries depending on the success of the lawsuits against FTX, Alameda, and Three Arrows Capital might leave many wondering just how much they stand to gain or lose.
Source: Blockworks
