Chapter 11 bankruptcy

BlockFi to sell $160M in Bitcoin miner-backed loans: Report

The deadline for bidders to submit offers for the Bitcoin-machine-backed loans is Jan. 24.

Bankrupt crypto lending firm BlockFi reportedly has plans to sell off $160 million in loans backed by around 68,000 Bitcoin mining machines as part of bankruptcy proceedings.

In a Bloomberg report on Jan. 24, two people “familiar with the matter” claimed that BlockFi started the process of selling off the loans last year.

The crypto lender filed for Chapter 11 bankruptcy in November, citing its significant exposure to the now-defunct crypto exchange FTX for its downfall.

However, some of these loans have already defaulted since then and could be undercollateralized given the decline in the price of Bitcoin mining equipment, according to the sources, adding the last day for bidders to submit offers for the loans is Jan. 24.

In comments to Cointelegraph, crypto lawyer Harrison Dell — director of Australian law firm Cadena Legal — explained that if Bitcoin mining equipment used as collateral is worth less than the value of the loans, the loans are “not worth their paper value anymore to BlockFi.”

Dell said that the people bidding for the debts are likely to be debt collection businesses buying for “cents on the dollar.”

He added that selling the debt is likely “all that the administrators” for BlockFi can salvage for these assets.

Dell also suggested that this is just the beginning of what’s to come for the crypto industry. He noted:

“This is just the start of the asset sales from BlockFi and other crypto firms in Chapter 11 bankruptcy in the U.S.”

Cointelegraph reached out to BlockFi for comment but did not receive a response by the time of publication.

BlockFi’s attempt to liquidate its loans is likely part of efforts to pay off its creditors, which according to its bankruptcy filing in November, number over 100,000.

At the time of its bankruptcy, it was reported that BlockFi sold $239 million of its own cryptocurrency assets to cover the bankruptcy expenses and warned approximately 70% of its staff that they would lose their jobs.

Related: BlockFi bankruptcy filing triggers a wide range of community reactions

Earlier this week, BlockFi petitioned the court in a Jan. 23 declaration to release funds to allow bonuses for key employees in a bid to retain them amid the Chapter 11 bankruptcy proceedings.

BlockFi’s chief people officer Megan Crowell told the court that without financial incentives, it’s unlikely the company will be able to retain its employees.

Crowell said it is highly likely many staff will leave the company without competitive compensation, noting that it would add further financial impact to the company down the road.

BlockFi files motion to return frozen crypto to wallet users

Crypto lender BlockFi has asked a U.S. bankruptcy court for the authority to return the crypto held in BlockFi wallets to users.

Bankrupt crypto lending platform BlockFi has filed a motion requesting authority from a United States bankruptcy court to allow its users to withdraw digital assets currently locked up in BlockFi wallets. 

In a motion filed on Dec. 19 with the U.S. Bankruptcy Court in the District of New Jersey, the lender asked the court for authority to honor client withdrawals from wallet accounts that have been frozen on the platform since Nov. 10.

The court documents also request permission to update the user interface to properly reflect transactions as of the platform’s pause.

In a widely shared email sent to affected users, BlockFi called the motion an “important step toward our goal of returning assets to clients through our chapter 11 cases,” adding:

“It is our belief that clients unambiguously own the digital assets in their BlockFi Wallet Accounts.”

According to BlockFi, this motion will not impact withdrawals or transfers from BlockFi Interest Accounts, which remain paused at this time.

The lending platform has also signaled intentions to seek “similar relief from the Supreme Court of Bermuda with respect to BlockFi Wallet Accounts held at BlockFi International Ltd.”

BlockFi International is a subsidiary of the company based in Bermuda, which runs its non-U.S. operations.

Crypto blogger Tiffany Fong shared the communication sent to her by BlockFi on Dec. 19, commenting that the embattled firm appears to be moving much faster than Celsius, which filed for bankruptcy over five months ago, compared to BlockFi’s bankruptcy filing in November. 

According to the court documents, a hearing to decide if the motion will be granted is scheduled for Jan. 9.

A separate hearing regarding wallet accounts held at BlockFi International Ltd is scheduled to go before the Supreme Court of Bermuda on Jan. 13.

Related: BlockFi sues FTX’s Bankman-Fried over shares in Robinhood

BlockFi halted client withdrawals and requested clients not to deposit to BlockFi wallets or Interest Accounts on Nov. 11, citing a lack of clarity around FTX.

By Nov. 28, BlockFi filed for Chapter 11 bankruptcy, for the company and its eight subsidiaries. BlockFi International filed for bankruptcy with the Supreme Court of Bermuda on that same day.

Bahamian liquidators reject validity of FTX’s US bankruptcy filing

The provisional liquidator overseeing the FTX Digital Markets bankruptcy proceedings says FTX wasn’t authorized to file for bankruptcy in the U.S without his approval.

Brian Simms, the court-appointed provisional liquidator overseeing the bankruptcy proceedings of FTX Digital Markets in The Bahamas, has called into question the validity of a Chapter 11 bankruptcy filing by subsidiary FTX Trading and 134 other affiliates in a Delaware court on Nov. 14.

In the Nov. 15 document, Simms filed for Chapter 15 Bankruptcy in the United States Bankruptcy Court in the Southern District of New York, which is used when a foreign representative of the debtor seeks recognition in the U.S. for a pending foreign insolvency proceeding.

In the filing Simms notes FTX Digital is not part of the Delaware Petition, and says as the provisional liquidator he is the only one, “authorized to take any act including, but not limited to, filing the Delaware Petition,” adding:

“The Provisional Liquidation Order divests FTX Digital’s directors’ of the ability to act, or exercise any functions, for or on behalf of FTX Digital unless expressly instructed to so by me in writing.”

The Bahamas-based lawyer argues because he “did not authorize or approve, in writing or otherwise,” he rejects the “validity of any purported attempt to place FTX Affiliates in bankruptcy.”

He further notes, “The entire FTX Brand was ultimately operated from a single location: The Bahamas. All core management personnel likewise were located in The Bahamas.”

FTX’s digital asset exchange was founded in May 2019 by Sam Bankman-Fried (SBF) in Hong Kong but after China’s crypto ban, SB relocated the company to the Bahamian capital of Nassau in Sept. 2021.

Simms has not asked the court to dismiss the U.S. bankruptcy proceedings, stating “no provisional relief seeking the injunction or dismissal of the Chapter 11 is presently sought” but requests the U.S courts recognize the legal actions taking place in The Bahamas.

However, he notes “it is conceivable that the FTX Affiliates that filed Chapter 11 will be impacted by the provisional relief sought,” by his filing.

Related: FTX’s ongoing saga: Everything that’s happened until now

Chapter 11 is used by businesses to help them reorganize their debts and repay creditors while continuing their operations.

The appointment of provisional liquidators followed the Bahamian securities regulator suspending FTX’s registration status and freezing its local subsidiary’s assets on Nov. 10.

Bahamian liquidators reject validity of FTX’s US bankruptcy filing

The provisional liquidator overseeing the FTX Digital Markets bankruptcy proceedings says FTX wasn’t authorized to file for bankruptcy in the U.S without his approval.

Brian Simms, the court-appointed provisional liquidator overseeing the bankruptcy proceedings of FTX Digital Markets in the Bahamas, has called into question the validity of a Chapter 11 bankruptcy filing by subsidiary FTX Trading and 134 other affiliates in a Delaware court on Nov. 14.

In the Nov. 15 document, Simms filed for Chapter 15 Bankruptcy in the United States Bankruptcy Court in the Southern District of New York, which is used when a foreign representative of the debtor seeks recognition in the U.S. for a pending foreign insolvency proceeding.

In the filing Simms notes FTX Digital is not part of the Delaware Petition, and says as the provisional liquidator he is the only one, “authorized to take any act including, but not limited to, filing the Delaware Petition,” adding:

“The Provisional Liquidation Order divests FTX Digital’s directors’ of the ability to act, or exercise any functions, for or on behalf of FTX Digital unless expressly instructed to so by me in writing.”

The Bahamas-based lawyer argues because he “did not authorize or approve, in writing or otherwise,” he rejects the “validity of any purported attempt to place FTX Affiliates in bankruptcy.”

He further notes, “The entire FTX Brand was ultimately operated from a single location: The Bahamas. All core management personnel likewise were located in The Bahamas.”

FTX’s digital asset exchange was founded in May 2019 by Sam Bankman-Fried (SBF) in Hong Kong, but after China’s crypto ban, SBF relocated the company to the Bahamian capital of Nassau in Sept. 2021.

Simms has not asked the court to dismiss the U.S. bankruptcy proceedings, stating that “no provisional relief seeking the injunction or dismissal of the Chapter 11 is presently sought” but requests the U.S courts recognize the legal actions taking place in the Bahamas.

However, he notes “it is conceivable that the FTX Affiliates that filed Chapter 11 will be impacted by the provisional relief sought,” by his filing.

Related: FTX’s ongoing saga: Everything that’s happened until now

Chapter 11 is used by businesses to help them reorganize their debts and repay creditors while continuing their operations.

The appointment of provisional liquidators followed the Bahamian securities regulator suspending FTX’s registration status and freezing its local subsidiary’s assets on Nov. 10.