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Discontented creditors of the insolvent cryptocurrency lending company BlockFi have filed a new court document in reaction to the firm’s recent restructuring proposal.
On May 12, BlockFi presented its Chapter 11 reorganization strategy in a submission to the United States Bankruptcy Court located in Trenton, New Jersey. The company indicated that a sale of BlockFi might not yield sufficient value for creditors, as it owes close to $1.3 billion to its top 50 creditors.
In reply, BlockFi’s creditors filed another document on May 15, contending that BlockFi intentionally took steps to postpone the trial.
Represented by the law firm Brown Rudnick, the creditors stated that BlockFi liquidated approximately $240 million in cryptocurrency prior to declaring bankruptcy in late November 2022. They highlighted that the crypto lender sold the assets “at the nadir,” alluding to a significant market downturn following the collapse of FTX.
“Liquidating nearly all domestic cryptocurrency in November 2022 was a very poor decision,” the creditors remarked, asserting that this choice resulted in losses exceeding $100 million in the subsequent months. They also mentioned “unnecessary and undesired tax consequences,” noting that the sale proceeds were not related to its bankruptcy. The document states:
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“Selling $240 million in cryptocurrency was never rationally related to bankruptcy funding needs, given that no reasonable estimate would peg the costs of this bankruptcy at $240 million.”
BlockFi customers further indicated that the company utilized $22.5 million of customer funds to acquire a $30 million insurance policy. According to the creditors, this occurred shortly after BlockFi liquidated its digital assets before filing for bankruptcy.
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“By liquidating everything pre-petition, BlockFi provided itself with a nearly unlimited budget, effectively shielded from bankruptcy’s adversarial process, allowing it to manage its case as long and as contentiously as it deems appropriate without the ‘typical milestones’ in a DIP or cash collateral order,” the creditors stated.
The plaintiffs urged the court to expedite the case by transferring the estate assets “into the hands of new management.” The creditors reiterated that such a situation appears inconsistent with the debtors’ case agenda.
BlockFi did not promptly respond to Cointelegraph’s request for comment. This article will be updated as new comments become available.
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