Cryptocurrency lender BlockFi recently retracted statements made earlier this month surrounding its plan to reorganize, which the company now admits was announced prematurely. In a court-ordered corrective letter to creditors, BlockFi requested that they disregard previous statements about the restructuring plan posted on the court docket, its own website, and Twitter.
Importantly, the court has not yet approved BlockFi’s disclosure statement or its ability to solicit acceptances of its plan. The Official Committee of Unsecured Creditors (the “Committee”) has also seemingly expressed its disagreement with BlockFi’s plan, highlighting the emerging divide between the two parties.
The Committee argued that the reorganization plan offers releases of litigation claims against current and former directors and officers of BlockFi who, according to the Committee, had committed significant misconduct that harmed both BlockFi and its customers. The Committee further revealed that it tried to negotiate with BlockFi but ultimately failed, as the lender decided to cut off negotiations.
Prior to the restructuring announcement, BlockFi filed for Chapter 11 bankruptcy in November, following the collapse of the troubled crypto exchange FTX. BlockFi’s bankruptcy came after the lender paused withdrawals in mid-November when it declared that it had “significant exposure to FTX” and its affiliated companies.
In 2021, BlockFi reportedly held between $14 billion and $20 billion worth of customer deposits and had lent out approximately $7.5 billion. Today, the company faces the daunting challenge of untangling the legal and financial controversies surrounding its bankruptcy and restructuring plans.
As a result, the main conflict at stake between BlockFi and the Committee is the potential impact of the restructuring proposal on various stakeholders, including creditors and customers. While BlockFi aims to secure the acceptance of its restructuring plan, the Committee remains unsatisfied with the current proposal, considering it to be detrimental to creditors’ interests and insufficient for addressing the company’s misconduct-related issues.
Moving forward, this situation raises critical questions about the future of BlockFi as it navigates the complex regulatory landscape in the cryptocurrency lending industry. It also draws attention to the wider regulatory repercussions for the crypto market, as governments and financial watchdogs closely scrutinize the increasing interconnectedness between the financial sector and digital assets.
Source: Cryptonews
