BlockFi, a leading lender of digital assets, filed for bankruptcy in November 2022, and has been granted an extension until May 15 to submit an exit plan, according to a New Jersey bankruptcy judge. The crypto firm is exploring a potential sale of company assets or the possibility of getting an outside backer to support a restructuring deal, as per the company’s lawyer Joshua Sussberg.
The bankruptcy code requires debtors to propose a Chapter 11 plan within the first 120 days of filing, which meant that BlockFi was required to present a plan by March 27. However, on March 21, the company filed a request to prolong the deadline for its Chapter 11 plan by 90 days to June 26. The company’s lawyers argued that “much work remains” due to the scale and complexity of the Chapter 11 cases. Judge Michael Kaplan, the bankruptcy judge handling the case, deemed it worthwhile to extend the deadline to ensure the smooth continuation of the case, albeit a shorter extension than the one requested by BlockFi.
The company is estimated to owe up to $10 billion to over 100,000 creditors. A committee of BlockFi customers argued they should be allowed to take control of the bankruptcy case so that cryptocurrency held on the platform can be returned to creditors immediately. Committee lawyer Robert Stark told Kaplan that BlockFi creditors aren’t sophisticated lenders, but individual mom-and-pop retail customers, “many of whom have lost their life savings.” The committee cited the lack of a workable business for reorganization and the potential sale of the platform, which Stark referred to as a “bundle of sticks.”
Although Kaplan rejected the committee’s appeal, he granted an extension that was “modest” according to Sussberg, who stated that the company would have a plan ready for unsecured creditors to evaluate within two weeks. The crypto firm’s lawyers have indicated that they are exploring all possible avenues, including a sale of assets, to emerge from bankruptcy as a more robust entity.
BlockFi’s financial woes stem from the company’s controversial decision to offer high-yield accounts backed by cryptocurrencies like Bitcoin and Ethereum. However, the firm’s aggressive growth strategy was met with regulatory scrutiny, with several states such as New Jersey, Alabama, and Texas ordering the company to cease operations in their jurisdictions.
In January 2022, the US Securities and Exchange Commission (SEC) issued a cease-and-desist order against BlockFi, alleging that the firm’s interest accounts were unregistered securities. The SEC’s lawsuit is ongoing, with BlockFi seeking to have the case dismissed.
In conclusion, the extension granted to BlockFi provides the company with additional time to devise a plan to emerge from bankruptcy as a viable entity. However, the company faces several challenges, including regulatory scrutiny, legal battles, and the loss of customer confidence. Only time will tell whether BlockFi can overcome these hurdles and regain its position as a leading player in the cryptocurrency lending space.
