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Bankrupt Crypto Lender BlockFi Secure Court Approval to Restructure

Bankrupt crypto lender BlockFi has in court a ruling conveyed on Tuesday September 26 secured the nod to execute its restructuring plan. The court’s decision delivers a significant milestone for the crypto lending platform embroiled in bankruptcy proceedings.

The ruling delivered by Judge Michael Kaplan on Tuesday gave the nod for the embattled crypto lender to start settling its obligations to customers in the newly formulated plan. The court’s ruling clarifies that the investors sought for several months since declared bankrupt in 2022. 

Judge Kaplan’s ruling tasked BlockFi to compile the conclusive list detailing the creditors and the amount owed. 

The ruling offers a positive twist for investors who have repeatedly decried the continued delay in the ongoing bankruptcy proceedings. The ruling offers a platform to spotlight the creditors who advanced unsecured loans to the crypto lender. 

Judge Kaplan Dismisses FTX Motion to Reject BlockFi’s Restructuring Plan

Landing the approval marks the start of the crypto lender paying back customers. BlockFi was rendered bankrupt from exposure to the FTX collapse in November 2022. 

Judge Kaplan bestowed upon the debtor to compile the list of claimants. The court documents issued on Tuesday acknowledge that BlockFi’s chief restructuring executive, Mark Renzi, supported the plan. 

BlockFi had earlier presented the liquidation plan towards the end of November 2022. The bankrupt firm would later revise and submit the updated restructuring plan. 

BlockFi would embark on a series of revisions to its restructuring proposals. A review of the court records shows that the bankrupt crypto lender would file an amended plan on May 12, a second on June 28, and a third on July 31.

Judge Kaplan observed that the court would overrule the challenges cited by the US Justice Department in executing its role as the bankruptcy oversight body. The regulator, in support of other stakeholders, opposed the liquidation plan, citing the legal releases that would benefit the BlockFi’s senior managers. 

FTX Opposition to BlockFi’s Restructuring Plan Overruled 

The move by BlockFi to submit the restructuring plan faced criticism and opposition from FTX’s counsel. The lawyers representing the bankrupt crypto exchange FTX formerly led by imprisoned Sam Bankman-Fried. The FTX counsel said in a September 14 submission that the plan was unfair to their claims and pleaded with the court to reject BlockFi’s restructuring plan. 

FTX counsel submitted that the restructuring plan overlooked issues that its debtors, alongside those of BlockFi, endeavor to resolve amicably. It opposed that approving the liquidation plan would deny the opportunity to resolve the dueling debtor claims justly and efficiently as initially pursued by the parties, 

A review of Monday’s filing indicates the committee admitted that BlockFi’s bankruptcy proceedings suffered contention. Nonetheless, they supported the restructuring plan since the settlement would help minimize administrative costs that would further diminish customer recoveries. 

FTX Role in BlockFi Challenges Under Scrutiny

BlockFi links its challenges to the collapsed Bankman-Fried empire, admitting the existence of significant exposure. A revisit of the 2022 events reveals that BlokFi suspended withdrawals on November 11, hours after FTX sought Chapter 11 bankruptcy protection. It would eleven days later, seek Chapter 11 bankruptcy protection. 

FTX creditors, in a July submission, indicated that the BlockFi chief executive Zac Prince had full awareness of FTX’s financial challenges before its sudden implosion in November 2022. 

Meanwhile, the court ruling obligates BlockFi to formulate its list of creditors. In an August court filing, the crypto lender disclosed that unsecured creditors would settle 35% to 63% of the claimed amount. 

The payment plan depends on BlockFi’s success in the ongoing legal batter against FTX. Also, the outcome of the pending cases against crypto firms is battling bankruptcy proceedings.  

The court approval yields an interesting account, considering that BlockFi debts are estimated at $10 billion. The largest three lenders claim $1 billion, while embattled Three Arrows Capital (3AC) is seeking $220 million from BlockFi. 

The development of this case presents a battle of legal minds advanced by the respective counsels that promise to shape crypto-related bankruptcy proceedings. 

Editorial credit: Formatoriginal / Shutterstock.com

Written by
Don Blankenship

Don Blankenship, a crypto writing maestro, captivates with his astute analyses of blockchain phenomena. Synthesizing the dynamic world of digital currencies into insightful prose, Don's articles are a beacon for enthusiasts and professionals. His expertise establishes him as a definitive voice in crypto journalism.

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