Bankruptcy Judge Michael A. Kaplan has approved BlockFi’s third revised Chapter 11 plan during a court hearing on September 26, as indicated in a filing on the same date. This development brings the customers of the distressed cryptocurrency lending platform closer to receiving their payouts following the endorsement of its liquidation plan by a United States Bankruptcy Court in New Jersey.
Meanwhile, the extent of reimbursement for BlockFi’s unsecured creditors will hinge significantly on the outcome of BlockFi’s legal dispute with FTX and other insolvent cryptocurrency companies.
BlockFi Granted Approval for Liquidation Plan
BlockFi initially submitted its first liquidation plan to the bankruptcy court on November 28. Still, subsequent revisions were required, leading to the filing of the first, second, and third amended plans on May 12, June 28, and July 31, respectively, according to court records.
Following a prolonged dispute with the creditors committee regarding the company’s senior management, BlockFi’s liquidation plan was ultimately approved. Judge Kaplan mentioned that challenges from the U.S. Justice Department’s bankruptcy oversight body and other stakeholders concerning legal releases benefiting BlockFi’s senior managers, as outlined in the liquidation plan, would be overruled.
In a court filing on Monday, the committee acknowledged that BlockFi’s bankruptcy proceedings had been contentious at times. However, they emphasized that the settlement helped avoid administrative costs that might have diminished customer recoveries.
The committee noted that despite facing various hurdles during the Chapter 11 case, BlockFi can now expedite customer repayments compared to other insolvent crypto firms. They also expressed optimism that payments to BlockFi creditors could commence within the current year.
Estimates indicate that BlockFi has outstanding debts of up to $10 billion owed to over 100,000 creditors. That includes $1 billion owed to its three largest creditors and $220 million to the bankrupt crypto hedge fund, Three Arrows Capital.
BlockFi’s Bankruptcy Saga
BlockFi halted customer withdrawals on November 10, just before the collapse and subsequent bankruptcy of FTX. When BlockFi filed for Chapter 11 later that month, the cryptocurrency lending platform initially aimed to restructure its operations.
However, it concluded earlier this year that liquidation would be the most effective means of repaying customers. The platform attributed its downfall to FTX’s collapse despite the creditor’s committee expressing reservations about BlockFi’s association with the exchange and its former CEO, Sam Bankman-Fried.
FTX later objected to BlockFi’s bankruptcy plan, contending that it still suffers from certain fundamental shortcomings. FTX’s legal team contends that the plan displays unfair treatment towards FTX Claims in specific aspects and has petitioned the Court to reject it.
In the filing, the exchange argued that the debtors of both BlockFi and FTX had endeavored to collaboratively address the intricate issues between the parties stemming from the “dueling debtor” claims in a just and efficient manner.