According to a recent press release, crypto lending firm BlockFi has filed for chapter 11 bankruptcy protection. The company predictably began to battle liquidity issues in the wake of FTX’s monumental crash.
BlockFi Hopes to Restructure
The lender submitted its application for bankruptcy protection in the United States Bankruptcy Court for the District of New Jersey alongside 8 affiliated companies. BlockFi’s goal is reportedly to bring operations back to steady ground. Chapter 11 of the Bankruptcy Code typically allows for reorganization, which BlockFi aims to accomplish to benefit clients and other stakeholders.
First BlockFi is set to redeem all obligations owed to it by counterparties such as FTX and related entities. As the FTX crisis is yet to come to an end, however, the lender acknowledges this might take some time. The press release noted that BlockFi has sought approval from the court to continue operations for now.
The lender aims to smoothly transition into Chapter 11. BlockFi has roughly $257M in cash at the moment according to its report.
Platform activity continues to be paused at this time. BlockFi has US$256.9 million in cash on hand, which is expected to provide sufficient liquidity to support certain operations during the restructuring process.”
More than 100,000 Creditors
Per the platform’s bankruptcy application, the range of both its assets and liabilities rests somewhere between $1-$10 billion. The filing revealed that BlockFi has over 100,000 creditors. Ankura Trust Company is at the top of the list with unsecured claims worth $730 million. Another major creditor is West Realm Shires Inc which is FTX US’s business name, the company has a $275M unsecured claim.
BlockFi also owes the Securities and Exchange Commission (SEC) $30 million due to penalties from earlier this year. Indeed, the firm had to pay a $100M settlement for charges that its high-yield crypto lending program breached state and federal securities laws.
Chapter 11 is BlockFi’s Best Bet
BlockFi also spoke about the filing in a post on Twitter, assuring users of regular updates. Indeed they also shared a blog post revealing further details of their bankruptcy protection.
Acting in the best interest of our clients is our top focus and continues to guide our path forward. Chapter 11 is a transparent process and we will continue to communicate with our clients to ensure they hear directly from us.
— BlockFi (@BlockFi) November 28, 2022
The company originally hit pause on withdrawals at the onset of the FTX crisis. However, its troubles go back a few months to when BlockFi experienced difficulties due to exposure to crypto hedge fund Three Arrows Capital. Around this time CEO Zac Prince stated that the company had to liquidate a major client, however, he did not reveal whether it was 3AC.
In July FTX provided a $400M line of credit thus allowing the crypto lender to evade bankruptcy back then. However, following FTX’s downfall BlockFi is back where it started. According to their blog post, the team looked into every possible option before settling for the Chapter 11 filing.