- Defunct crypto lending platform, BlockFi, won bankruptcy court approval on its plan to shut down its business.
- The approval is seen as a milestone moment for BlockFi’s 100,000-plus creditors, who have been long awaiting repayment.
- BlockFi has said the outcome of its disputes with the FTX platform and failed crypto hedge fund Three Arrows Capital could swing credit recoveries by US$ 1 billion.
Bankrupt crypto lender BlockFi won bankruptcy court approval on its plan to shut down its business. However, the platform’s customers are a step closer to being paid out after a United States Bankruptcy Court in New Jersey approved BlockFi’s liquidation plan.
A crypto lending platform is a service that allows cryptocurrency holders to lend their assets to borrowers in exchange for interest payments. These platforms typically require borrowers to provide collateral, such as Bitcoin or Ethereum, to secure their loans. The platform then uses this collateral to lend out to other users, creating a pool of funds that can be used to offer loans at competitive interest rates.
During a hearing on Tuesday (Sep 26), Judge Michael Kaplan approved BlockFi’s liquidation plan, which was supported by a committee representing customer interests and creditors that voted to support it. According to court documents, some BlockFi creditors are slated to receive partial repayment in Bitcoin or Ethereum.
According to an August court filing, BlockFi unsecured creditors could get between roughly 35 percent to 63 percent of what they’re owed. The amount creditors ultimately receive depends on whether BlockFi succeeds in litigation against FTX and other bankrupt crypto firms.
Further, BlockFi has noted that the outcome of its disputes with Sam Bankman-Fried’s platform and failed crypto hedge fund Three Arrows Capital could swing creditor recoveries by US$1 billion.
Blockfi’s Liquidation Plan Journey
BlockFi first filed with the bankruptcy court on Nov. 28 on the journey of its liquidation plan. However, it was then required to submit a first, second, and third amended plan on May 12, June 28, and July 31, per the court filings.
The liquidation plan was approved after BlockFi settled a dispute with the creditors committee over potential legal claims against the company’s senior management. BlockFi largely blamed its failure on FTX, which collapsed last year amid allegations of fraud. On the other hand, the committee alleged management ignored red flags before lending to Bankman-Fried’s platform.
However, the Sept. 25 court filing indicates that the BlockFi creditors committee acknowledged that the settlement likely reduced additional administrative fees and expenses that could have cut into the recoveries.
Despite several challenges during the Chapter 11 case, BlockFi is now poised to repay customers faster than other bankrupt crypto firms, the committee said.
It is worth mentioning that the estimates indicate that the lending platform owes up to $10 billion to over 100,000 creditors, including $1 billion to its three largest creditors and $220 million to bankrupt crypto hedge fund Three Arrows Capital.
BlockFi is being represented by law firms Kirkland & Ellis LLP and Haynes and Boone LLP.