BlockFi, the bankrupt cryptocurrency lender, is making significant strides in its Chapter 11 reorganization. Recently, the United States Bankruptcy Court for the District of New Jersey granted conditional approval to the company’s disclosure statement. This marks a crucial milestone in its recovery process.
Support for the Plan and Focus on Fund Recovery
In a joint statement issued on August 2, 2023, BlockFi and the Official Committee of Unsecured Creditors urged all eligible parties to vote in favor of the reorganization plan before the September 11 voting deadline. A successful approval will pave the way for resolving the Chapter 11 case. Most importantly, it will facilitate the return of client funds.
Once the bankruptcy plan receives the green light, BlockFi will shift its focus towards recovering funds from several defunct firms. These include Alameda Research, FTX, Three Arrows Capital, Emergent, Marex, and Core Scientific. The primary objective is to optimize client recoveries and counter potential claims from third parties, which could dilute client assets significantly.
Client Benefits and Conditions
The approved plan offers clients an opportunity for releases if they don’t opt out of a voluntary third-party release. This release would protect them from all claims and actions that BlockFi may have against them. However, clients who withdrew $250,000 or more from BlockFi Interest Accounts (BIA) or BlockFi Private Client (BPC) Accounts on or after Nov. 2, 2022, will not be eligible for this release.
Furthermore, under the plan, BlockFi will not reclaim amounts under $250,000 that clients properly transferred from BIAs or BPCs to BlockFi Wallet and withdrew before the platform paused on Nov. 10, 2022.
Clients with claims under $3,000, or those who choose to reduce their claim to $3,000, will be part of the convenience claim class. Additionally, they will receive a one-time cash distribution from the BlockFi estate equal to 50% of their claim.
SEC’s Decision on Fine Collection
In a significant development, the US SEC has agreed to postpone the collection of a $30 million fine from BlockFi until creditors are fully repaid. This fine forms part of a $50 million settlement reached with the regulator in February 2022.
The conditional court approval and progress in the reorganization plan signal a positive trajectory for BlockFi’s financial recovery and the eventual return of funds to its clients. With voting underway and the SEC’s support in delaying fine collection, BlockFi is taking crucial steps towards resolving its Chapter 11 case and rebuilding its financial stability.
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