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Court directs BlockFi to retract chapter 11 reorganization plan

court-directs-blockfi-to-retract-chapter-11-reorganization-plan
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Court directs BlockFi to retract chapter 11 reorganization plan

A U.S. bankruptcy court recently ordered cryptocurrency lender BlockFi to withdraw its prematurely disclosed chapter 11 reorganization plan and accompanying statement until all materials are formally authorized.

On May 18, the court directed BlockFi, the insolvent cryptocurrency lender, to retract its prematurely disclosed chapter 11 reorganization plan and corresponding statement.

The court insisted these documents should not have been revealed before being officially sanctioned.

As a remedial measure, BlockFi was instructed to issue a rectification statement on its Twitter account within a day, which it promptly followed.

The rectification tweet urged creditors to ignore the premature announcements on the court docket, its official website, and Twitter feed from May 13, regarding the reorganization plan until official authorization was provided.

In response, the Official Committee of Unsecured Creditors, a representative group of BlockFi’s creditors, filed a stern reproach in court on May 15, criticizing BlockFi’s noncompliance with the law and chapter 11 regulations.

The committee accused the company of undermining the integrity of the bankruptcy process.

According to the committee, BlockFi sent unsolicited emails to each of its nearly 100,000 creditors, even those with legal counsel, breaching their non-consent for direct email correspondence on legal issues.

Adding to the list of improprieties, the committee highlighted a letter to creditors dated May 12.

Despite BlockFi’s assertion that the letter was not intended to solicit votes for its chapter 11 plan, the committee felt parts of the letter were conspicuous and exceeded the scope of a simple bankruptcy development update.

BlockFi stated in one part of the letter that the proposed plan would expedite the process of returning funds held in wallet accounts to customers.

Blockworks had earlier reported that the same letter suggested the potential for asset recovery for BlockFi’s clients was contingent on pending legal cases against firms, including FTX, Alameda, and Three Arrows Capital, who allegedly defrauded BlockFi.

BlockFi noted the possibility of recovery sums exceeding $1 billion, depending on the lawsuit outcomes. The reorganization plan’s approval deadline for creditors is set for July 28, 2023, pending court approval.