BlockFi to Liquidate Lending Platform After Futile Sales Attempts

Bankrupt crypto lender BlockFi has made a significant decision to seek court authorization for the liquidation of its lending business. This move comes after unsuccessful attempts to sell the lending platform to third parties. In a document filed with the U.S. Bankruptcy Court in Trenton, New Jersey, BlockFi disclosed its Chapter 11 restructuring plan subject to court approval. 

“Therefore, finalizing and consummating a transaction for the BlockFi Platform would not result in an expedient and value-maximizing transaction for the benefit of the Debtors’ creditors.

Accordingly, the Debtors are proceeding with the Self-Liquidation Transaction whereby the Debtors will distribute their assets to creditors in accordance with the terms of the Plan, followed by a Wind Down of their affairs,” lawyers representing the bankrupt entity said.

The firm cited regulatory developments and the absence of value-maximizing offers as reasons for the failed sales attempts. The liquidation process aims to generate funds to repay creditors, with the primary driver of recoveries being the claims against commercial counterparties such as FTX Group and other entities.

Challenges in Selling the BlockFi Platform

Despite actively seeking potential buyers, BlockFi did not receive offers that maximized the value of its lending platform. The company attributes this difficulty to regulatory developments in the cryptocurrency industry. These regulatory changes likely raised concerns among potential buyers, deterring them from submitting quality bids. 

As a result, BlockFi concluded that finalizing a transaction for the BlockFi Platform would not yield an expedient and value-maximizing outcome for the benefit of its creditors. Consequently, the company has decided to proceed with a self-liquidation transaction, distributing its assets to creditors in accordance with the terms of the proposed plan.

BlockFi’s self-liquidation plan offers both opportunities and uncertainties for creditors and clients. The recovery of funds by these parties heavily depends on the claims against commercial counterparties, including FTX Group, Alameda Research, Three Arrows Capital (3AC), Emergent, and Marex. Collectively, these entities owe BlockFi approximately $1 billion. 

The outcome of litigations against these counterparties will substantially impact client recoveries, potentially resulting in swings exceeding $1 billion. Therefore, BlockFi deems it crucial to pursue these litigations, as the potential increase or decrease in client recoveries could be substantial.

In a recent legal ruling, a U.S. judge determined that assets held in BlockFi’s interest-bearing accounts do not belong to the users seeking to reclaim them. Consequently, BlockFi has been instructed to cancel all pending transactions initiated by users attempting to move their assets. 

This decision follows the company’s decision to halt withdrawals last year, causing frustration among users who were unable to access their funds. The ruling places further challenges on the company as it navigates the liquidation process and strives to manage user expectations.

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