BlockFi creditors urge liquidation of the company

The creditors’ committee of BlockFi, a cryptocurrency lending platform, accused its management of delaying the restructuring process and proposed to the court that the company be liquidated.

In November 2022 the firm filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. This occurred roughly two weeks after the collapse of FTX and Alameda Research. Prior to this, BlockFi acknowledged that the exchange and its subsidiary had outstanding obligations to the company.

Creditors contend that the platform’s top management, including CEO Zak Prince, should be held legally responsible for providing these loans. To avoid liability, the BlockFi leadership continues to delay the restructuring, they contend.

According to the complaint, the process is accompanied by an unwarranted burn of the debtor’s funds. Monthly administrative expenses run at about $16 million, including salaries for around 100 employees.

“Many of them, as far as we know, did little, but polished their golf games. The Official Committee repeatedly asked the debtors to cut costs. All such requests were rejected, as were other forms of cooperation,” the lawsuit states.

As of the end of May, BlockFi had spent a total of $94 million on administrative and other expenses.

“Unsecured creditors are long overdue to learn what BlockFi really was, who Zak Prince really is, how he personally profited from the company, and what he and some of his colleagues actually did, contrary to their promises to clients,” the petitioners said.

They say the time for negotiations with the team is over—only court proceedings lie ahead.

“This case of ‘reorganization’ is over. The business has ceased all operations and is non-functioning. Efforts to sell the platform generated zero viable offers,” the creditors say.

In their view, the court could end this “extortion” with one of three solutions:

• appoint a Chapter 11 trustee;
• grant exclusive rights to complete the bankruptcy under a plan that does not provide for additional releases;
• reclassify the case under Chapter 7, under which the insolvent company is liquidated.

Alongside the filing, the creditors submitted to the court an updated plan of reorganization. It envisions that holders of interest-bearing accounts on the platform will receive 39-100% of their funds from a total debt of about $1 billion. In the event of asset liquidation, restitution would be 36-60%.

In June, BlockFi allowed the resumption of withdrawals by some clients until the end of the summer.

In May 2023, the court allowed the company to return $300 million to custodial-account holders.