Creditors of the insolvent cryptocurrency lending business BlockFi have lodged a fresh court document, challenging the company’s most recent restructuring proposal.
On May 12, BlockFi detailed its Chapter 11 restructuring strategy in a document submitted to the United States Bankruptcy Court in Trenton, New Jersey. The firm suggested that a sale of BlockFi might not yield sufficient value for its creditors given its outstanding debt of nearly $1.3 billion to its top 50 creditors.
Countering this, BlockFi creditors filed an additional court document on May 15, accusing BlockFi of intentionally delaying the court proceedings.
Represented by the Brown Rudnick law firm, the creditors of BlockFi highlighted that the firm liquidated approximately $240 million in cryptocurrency prior to declaring bankruptcy in late November 2022. They underlined that the crypto assets were sold “at the nadir,” referring to a substantial market decline following the FTX collapse.
The creditors criticized BlockFi’s decision to liquidate almost all domestic cryptocurrency in November 2022 as ill-judged, costing them over $100 million in subsequent months. They also pointed out “unnecessary and undesired tax consequences,” asserting that the sale was not relevant to its bankruptcy proceedings. The filing stated:
“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.”
According to the creditors, BlockFi expended $22.5 million of client funds to purchase a $30 million insurance policy, following the disposal of digital assets before filing for bankruptcy.
The creditors argued in their document, “By selling everything pre-petition, BlockFi provided itself with an almost unlimited budget, essentially shielded from the bankruptcy’s adversarial process, to conduct its case for as long and as contentious as it deems appropriate without the ‘typical milestones’ in a DIP or cash collateral order.”
The plaintiffs urged the court to expedite the case’s conclusion by transferring the estate assets “into the hands of new management.” They reiterated that such a situation appears incongruous with the debtors’ case objectives.
BlockFi did not immediately respond to Cointelegraph’s request for comment.
