BlockFi determined earlier this year that liquidation was the best choice for compensating customers after extensive consideration.
Bankrupt crypto lender BlockFi has secured bankruptcy court approval for its plan to shutter its operations and repay its customers through a liquidation plan.
Bankruptcy Court Approves BlockFi Liquidation Plan
A recent report by Bloomberg reveals that some BlockFi creditors will receive partial repayment in cryptocurrencies, specifically Bitcoin (BTC) or Ethereum (ETH) through the liquidation plan. According to an August court filing, BlockFi unsecured creditors could receive between 35% and 63% of what they’re owed.
However, the amount unsecured creditors will ultimately receive is contingent on the outcome of BlockFi’s legal disputes. The company has been actively engaged in litigation against FTX, Sam Bankman-Fried’s platform, and the failed crypto hedge fund Three Arrows Capital. The resolution of these disputes is pivotal in determining the final payout to creditors.
BlockFi has consistently asserted that the downfall of its operations was primarily a result of FTX’s meltdown amid allegations of fraud, while the creditors’ committee contended that management ignored warning signs before lending to Bankman-Fried’s platform.
This approval came after BlockFi settled a dispute with the creditors’ committee over potential legal claims against the company’s senior management. The company had largely attributed its failure to FTX’s actions, while the committee alleged that management had ignored red flags before extending loans to Bankman-Fried’s platform.
Judge Kaplan made it clear that he would overrule challenges raised by the US Justice Department’s bankruptcy watchdog and other stakeholders regarding legal releases benefiting BlockFi’s senior managers as outlined in the liquidation plan.
In response to these developments, the creditors’ committee released a statement, noting that the bankruptcy process had been challenging at times but ultimately ended with a settlement that avoided administrative expenses that could have reduced customer recoveries.
Despite the hurdles faced during the Chapter 11 case, the committee expressed optimism that BlockFi is now in a position to repay customers faster than other bankrupt crypto firms. The creditors’ committee has expressed hope that payments to BlockFi creditors will finally commence this year.
The Rise and Fall of BlockFi
BlockFi, once a shining star in the crypto lending space, offered customers the opportunity to earn interest on their digital assets and borrow against them. Founded in 2017, the company quickly gained popularity in the crypto community, capitalizing on the booming interest in Decentralized Finance (DeFi) and the broader crypto market.
However, the crypto community was shocked when BlockFi abruptly halted customer withdrawals on November 10, just prior to the collapse of FTX into bankruptcy. Following the suspension of withdrawals, BlockFi took the step of filing for Chapter 11 bankruptcy later that same month.
At the time, the crypto lender’s intention was to restructure its business in an effort to address its financial challenges and meet its obligations to customers and creditors. However, as the bankruptcy process progressed, it became clear that restructuring might not be the best option.
BlockFi determined earlier this year that liquidation was the best choice for compensating customers after extensive consideration.
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Benjamin Godfrey is a blockchain enthusiast and journalist who relishes writing about the real life applications of blockchain technology and innovations to drive general acceptance and worldwide integration of the emerging technology. His desire to educate people about cryptocurrencies inspires his contributions to renowned blockchain media and sites.