BlockFi Inc. and its affiliates announced that the United States Bankruptcy Court for the District of New Jersey conditionally approved the company’s Disclosure Statement on August 2, 2023. The approval is part of BlockFi’s Chapter 11 Plan, aimed at maximizing recovery for clients and ensuring the quickest possible distributions.
The plan, recommended by both BlockFi and the Official Committee of Unsecured Creditors, is set to bring the Chapter 11 cases to a fair conclusion, returning client funds as quickly as possible. All parties entitled to vote on the plan must do so by the September 11, 2023, voting deadline.
Mark Renzi of Berkeley Research Group, BlockFi’s Chief Restructuring Officer, stated, “BlockFi’s mission through this process has been to maximize recoveries for our creditors, and conditional approval of our Disclosure Statement moves us one step closer to accomplishing that goal.”
The plan includes provisions for returning digital assets held in BlockFi Wallet Accounts to clients and safely and securely returning non-Wallet assets to creditors. It also outlines a wind-down of the company’s affairs. Clients who do not opt out of a voluntary third-party release will be offered releases from all claims and causes of action BlockFi may have against them, except for those whose withdrawals from BlockFi Interest Accounts or BlockFi Private Client Accounts on and after November 2, 2022, are greater than $250,000.
Under the plan, BlockFi will not claw back amounts under $250,000 that clients properly transferred before the Platform Pause on November 10, 2022. Clients with claims under $3,000, or those electing to reduce their claim to $3,000, will be included in a Convenience Claim Class and will receive a one-time cash distribution from the BlockFi Estate. Creditors in this class will receive a one-time distribution of 50% of their claim in cash.
If the plan is confirmed, BlockFi will focus on pursuing claims and causes of action in litigation against several entities, including Alameda, FTX, 3AC, Emergent, Marex, and Core Scientific, to maximize recoveries for clients. The success or failure in these matters could make a difference to client recoveries of over $1 billion.
BlockFi’s eligible creditors have the opportunity to vote in favor of the plan and will receive detailed voting instructions and additional information. The deadline for votes to be counted is September 11, 2023, at 4:00 p.m. prevailing Eastern Time. BlockFi encourages all clients, including those not eligible to vote, to read the Disclosure Statement and other materials in their Solicitation Packages to learn more about the plan.
Advisors to the company during this process include Haynes and Boone LLP, Kirkland & Ellis LLP, and Cole Schotz P.C. as legal counsel; Moelis & Company as investment banker; and Berkeley Research Group as financial advisor. C Street Advisory Group, LLC is serving as strategy and communications advisor, and Joel Edwards of EY Bermuda Ltd and Eleanor Fisher of EY Cayman Ltd are serving as Joint Provisional Liquidators of BlockFi International Ltd, a Bermuda-incorporated entity.
BlockFi is a bankrupt crypto lender and which filed for Chapter 11 bankruptcy on November 28, 2022, encompassing all eight of its companies. A simultaneous petition for bankruptcy was submitted to the Supreme Court of Bermuda by BlockFi International.
BlockFi sought permission from a U.S. bankruptcy court to enable customers to withdraw digital assets stored in BlockFi wallets. Filed on December 19, the lender referred to this as an “essential step” in its Chapter 11 proceedings. Hearings were scheduled for January 9 in the U.S. and January 13 in Bermuda.
On April 22, 2023, BlockFi was granted an extension until May 15 to submit a bankruptcy exit plan. The company’s controversial decision to offer high-yield crypto-backed accounts led to regulatory scrutiny and legal battles, including a cease-and-desist order from the SEC in January 2022.
A report submitted on July 14, 2023, to the United States Bankruptcy Court for the District of New Jersey revealed that BlockFi’s failure was attributed to fundamentally flawed business models and ignored risk warnings. CEO Zac Prince allegedly dismissed concerns over lending assets to Alameda Research, leading to a $217 million loan despite warnings. BlockFi had $1.2 billion in assets tied to FTX and Alameda Research at the time of bankruptcy in November 2022.
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