BlockFi Receives Court Approval for Liquidation Plan

Crypto lender BlockFi has reportedly been granted approval for its liquidation plan by a bankruptcy court.

This decision brings a glimmer of hope for customers who may now receive a portion of their owed funds by the end of the year, Bloomberg reported Tuesday (Sept. 26). The approval was granted by Judge Michael Kaplan, who expressed support for BlockFi’s plan, which had the backing of a committee representing customer interests and supporting creditors.

Some BlockFi creditors can expect to receive partial repayment in popular cryptocurrencies such as Bitcoin or Ethereum, according to the report. The amount returned to unsecured creditors is estimated to range between approximately 35% to 63% of what they are owed.

The amounts depend on the outcome of BlockFi’s ongoing litigation against FTX and other bankrupt crypto firms, the report said. BlockFi has emphasized that the resolution of these disputes could potentially impact creditor recoveries by up to $1 billion.

In bankruptcy court documents filed in August, BlockFi made arguments about why FTX and Three Arrows Capital (3AC) shouldn’t get the money they are asking for.

The liquidation plan received approval after BlockFi reached a settlement with the creditors committee regarding potential legal claims against the company’s senior management, per the report. BlockFi attributed its failure to the meltdown of FTX last year, while the committee alleged that management had disregarded warning signs before extending loans to FTX.

Despite facing challenges during the Chapter 11 case, BlockFi is now expected to repay customers at a faster pace compared to other bankrupt crypto firms, according to the report.

BlockFi initially halted customer withdrawals in November 2022, just before FTX declared bankruptcy, the report said. While the company initially intended to restructure its operations through Chapter 11, it later concluded that liquidation was the most viable option for repaying customers.

The firm suffered a solvency crisis during the summer of 2022 after crypto prices plummeted, shaking digital asset markets. In need of rescue, BlockFi accepted a lifeline from FTX in the form of a $400 million revolving credit facility. The deal also gave FTX an option to buy BlockFi for $240 million, depending on certain performance triggers.

BlockFi reportedly used most of the credit facility to right its balance sheet, and also extended millions of dollars of loans that used FTX’s now nearly worthless FTT tokens as collateral.