The creditors’ committee of the BlockFi crypto-lending platform accused its management of dragging out the process of business restructuring and suggested that the court liquidate the company.
In November 2022, the firm filed for Chapter 11 Bankruptcy. This happened about two weeks after the collapse of FTX and Alameda Research. Prior to this, BlockFi acknowledged that the exchange and its subsidiary have outstanding obligations to the company.
The lenders argue that the platform’s top managers, including CEO Zak Prince, should be held legally responsible for providing these loans. To avoid it, BlockFi management continues to delay the restructuring, they believe.
According to the statement, this process is accompanied by unreasonable “burning” of the debtor’s funds. Monthly administrative expenses are about $16 million, including the salaries of approximately 100 employees.
“Many of them, as far as we know, did little but improved their golf game. The official committee has repeatedly asked debtors to cut costs. All such requests were denied, as were other forms of cooperation,” the lawsuit says.
At the end of May, BlockFi spent a total of $94 million on administrative and other needs.
“It is time for unsecured creditors to finally find out what BlockFi really was, who Zach Prince really is, how he personally profited from the company, and what he and some of his colleagues actually did, in contrast to their promises to customers,” the applicants emphasized.
According to them, the time for negotiations with the team is over – only court proceedings will follow.
“This “reorganization” case is over. The business has ceased all operations and is non-functioning. Efforts to sell the platform have generated zero valid offers,” creditors said.
According to them, the court can stop this “extortion” by one of three decisions:
- appoint a bankruptcy trustee under Chapter 11;
- grant exclusive rights to complete the bankruptcy under a plan that does not provide for additional releases;
- reclassify the case to Chapter 7, which is the liquidation of an insolvent company.
In parallel with the filing of the application by creditors, BlockFi submitted an updated reorganization plan to the court. It assumes that holders of interest-bearing accounts on the platform will receive 39-100% of their funds out of a total debt of about $1 billion. In the event of liquidation of assets, the recovery will be 36-60%.
Recall that in June, BlockFi allowed the resumption of the withdrawal of funds by some clients until the end of the summer.
In May 2023, the court allowed the company to return $300 million to users of custodial accounts.
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