Voyager Digital Assets, Inc., a number one cryptocurrency brokerage and lending platform, filed for Chapter 11 chapter safety on July 5, 2022 within the Southern District of New York following a current monetary disaster impacting the crypto {industry}, which traders are calling the “crypto winter.” The submitting was adopted by the Chapter 11 chapter of Celsius Networks. While the scenario is fluid, these two filings might be the start of a collection of bankruptcies by main cryptocurrency firms. As world monetary markets worsen and traders withdraw their belongings – notably within the riskier area of cryptocurrency – extra firms could also be pressured to hunt refuge in chapter, elevating novel points for courts tasked with distributing digital belongings to collectors.
Because Voyager is the primary cryptocurrency firm to file for Chapter 11, new regulation will shortly develop within the chapter continuing that can have an enduring influence on the cryptocurrency {industry}, and winners and losers will emerge primarily based on the actions events take now throughout these unsure occasions. Here at (*11*), we have now huge expertise in restructuring representing debtors, fairness homeowners, collectors, advert hoc teams, collectors’ committees, asset purchasers and different distressed traders. We have mixed our experience in restructuring and crypto to type a crew of attorneys who’re centered on the problems events ought to find out about to guard their pursuits and make the most of the present market each in and outdoors of chapter.
According to historic stability sheet information, Voyager’s monetary struggles had been considerably abrupt and stand in stark distinction to prior yr outcomes. Voyager had a powerful fiscal yr in 2021, due largely to a rise in buyer deposits that the corporate used to offer loans to counterparties within the crypto sector. These intra-industry loans are widespread within the crypto world, and in good occasions, had been used to move off any curiosity earned on the loans on to clients. However, because the underlying worth of digital belongings fell in current months and clients withdrew their belongings, counterparties defaulted on the loans, resulting in a cascading monetary disaster.
In a current press launch, Voyager cited normal market circumstances in addition to a defaulted $650 million mortgage to Three Arrows Capital – a crypto hedge fund that lately struggled and is itself present process insolvency proceedings within the British Virgin Islands and a corollary Chapter 15 chapter within the Southern District of New York. Voyager’s Chief Executive Officer Stephen Ehrlich expressed excessive hopes for the corporate’s future, however famous that Voyager’s goal for a “comprehensive reorganization is the best way to protect assets on the platform and maximize value for all stakeholders, including customers.”
Voyager has lately proposed a Chapter 11 plan of reorganization to emerge from chapter, together with a possible sale course of. Through the proposed plan, Voyager seeks to distribute a mix of crypto held on the Voyager platform, shares of the newly reorganized firm, Voyager tokens, and proceeds from the Three Arrows restoration to clients. The firm disclosed that’s has $110 million in money and crypto belongings readily available in addition to $1.3 billion of crypto belongings on its platform. It additionally has greater than $350 million of money held in a For Benefit of Customers account at Metropolitan Commercial Bank. In distinction to clients’ digital belongings on the Voyager platform that the corporate considers property of the chapter property – a place that’s prone to be hotly contested within the proceedings – Voyager has promised quick return of the $350 million to clients following completion of a reconciliation and fraud prevention course of by the financial institution. Despite these belongings, as an unsecured creditor within the Three Arrows chapter, Voyager’s profitable reorganization and affirmation of the plan will in the end rely on the quantity it recovers from the continuing Three Arrows liquidation.
Voyager has introduced that it’s exploring all choices to maximise buyer recoveries, together with a dual-track restructuring course of which may result in the sale of the corporate instead of distribution beneath the proposed plan. On July 21, Voyager filed a Bidding Procedures Motion requesting initiation of a confidential bidding course of previous to affirmation of the plan and has engaged with greater than 80 events. Although it’s doable {that a} successful bid would substitute the proposed distribution of belongings to clients, Voyager makes clear that its desire is for a sale that may be completed by the proposed plan.
The Voyager chapter raises novel points regarding the distribution of digital belongings beneath the Bankruptcy Code. At the Voyager first day listening to, the courtroom questioned whether or not digital belongings on the Voyager platform ought to be thought-about property of the property, and thus topic to distribution to unsecured collectors, or property of Voyager clients themselves. The solutions to those novel questions are prone to come quickly, because the Southern District of New York wades into the substance of the Voyager and Celsius Network bankruptcies. The solutions will in the end decide the success of reorganization by these, and different firms pressured out of business by the crypto winter.
