BlockFi, the beleaguered cryptocurrency lending platform, faces stiff opposition from disgruntled creditors who believe the company’s proposed restructuring plan offers them little value. As the company navigates the murky waters of bankruptcy, the creditors’ latest legal filing throws a spanner into BlockFi’s proposed roadmap for recovery.
BlockFi’s Restructuring Plan Receives Pushback
On May 12, BlockFi unveiled its Chapter 11 reorganization plan to the United States Bankruptcy Court in Trenton, New Jersey. The crypto lending firm argued that an outright sale of the business would likely not provide sufficient return for creditors. This assertion comes in the face of nearly $1.3 billion owed to its top 50 creditors, making the stakes exceptionally high.
In a swift comeback on May 15, BlockFi’s creditors fired back with a court filing, accusing the company of intentionally delaying trial proceedings. In addition, Brown Rudnick, the legal team representing the creditors, made damning claims about the company’s actions leading up to its bankruptcy filing in late November 2022.
The $240 Million Crypto Sale Controversy
The creditors’ filing highlighted that BlockFi sold roughly $240 million worth of cryptocurrency during the “nadir” of a market downturn following the collapse of FTX. This sale, the creditors argue, was ill-advised and ended up costing over $100 million in the subsequent months. They also noted that the sale resulted in “unnecessary and undesired tax consequences” and was unrelated to its bankruptcy needs.
“Selling $240 million in cryptocurrency bore no rational relation to the bankruptcy funding needs, considering that no reasonable estimate would place the cost of this bankruptcy at $240 million,” the document stated.
BlockFi’s Use of Customer Funds Questioned
Adding fuel to the fire, the creditors alleged that BlockFi used $22.5 million of its customers’ money to purchase a $30 million insurance policy. This transaction reportedly occurred shortly after the company liquidated its digital assets in preparation for its bankruptcy filing.
By liquidating its assets ahead of its petition, BlockFi “allocated itself a virtually limitless budget, essentially protected from bankruptcy’s adversarial process, to steer its case as long and as contentious as it deems necessary without the ‘typical milestones’ in a DIP or cash collateral order,” the creditors contended.
Plaintiffs Call for New Management
In a bold move, the plaintiffs urged the court to expedite the end of the case by transferring the estate assets “into the hands of new management.” They reiterated their belief that the current management’s approach seems incompatible with the debtors’ case agenda.
As the legal drama around BlockFi’s bankruptcy unfolds, the creditors’ strong opposition to the company’s proposed restructuring plan underscores the high stakes and the fraught tensions involved in this case.
It remains to be seen how BlockFi will respond to these accusations and whether it can chart a course toward recovery that satisfies its creditors.
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