Efforts by bankrupt cryptocurrency lender Voyager Digital to transfer its holdings to cryptocurrency exchange FTX US for $1.4 billion have been somewhat manageable. Still, on 12th October, a significant catch came to light. In the prospective selling agreement, Voyager’s officials have secured broad legal immunity for themselves.
The Legal Contention
Voyager’s Unsecured Creditors Committee (UCC) opposed the ‘broad releases’ clause that would protect the crypto lender’s officers and directors – who are “principally responsible for the debtors’ financial woes,” according to the submission – from potential litigation in a partially redacted complaint to Voyager’s recently announced sale agreement. The selling contract is subject to the grant of legal immunity in its present form.
For Voyager’s creditors, there is a ‘Hobson’s choice,’ according to the UCC’s legal counsel. One option they’ve given them is to endorse the sale agreement as-is and increase the likelihood that they’ll receive their money more quickly while letting Voyager’s management get away with it.
The strategy might also be contested, which would put the bankruptcy proceedings at risk of ‘devolving into a tangle of litigation, to the sole detriment of unsecured creditors, whose assets will continue to stay frozen for a considerably longer period of time.’
The UCC’s Investigation Findings
The UCC investigated Voyager’s executives’ behavior to determine what the legal immunity would protect them from, as per Wednesday’s filings, and deemed its conclusions ‘sobering.’
The lawyers contended that efforts to shield the executives from lawsuits were ‘particularly heinous’ since there could be ‘colorable and valuable causes of action against these directors and officers.’ Still, specifics of the UCC’s conclusions are not yet revealed.
In its argument, the UCC requests that the bankruptcy court presiding over Voyager’s bankruptcy court proceedings disregard the clause granting legal immunity and instead move forward with the purchase consensus.
After the collapse of the cryptocurrency hedge fund Three Arrows Capital in June, Voyager announced its bankruptcy in July. At the beginning of this year, Voyager loaned Three Arrows $670 million.
What Led Up To This?
In mid-2022, following the collapse of the cryptocurrency market, Voyager halted all withdrawals from its customers. The crypto-lender attributed most of its demise to market correction volatility and Three Arrows Capital’s (TAC) filing for bankruptcy. Between $1 billion and $10 billion in virtual properties from Voyager’s bankruptcy were auctioned off along with over 100,000 creditor signatures.
Before TAC announced its bankruptcy earlier this year, the organization publicly stated that it had spent more than $650 million with institution-sized hedge fund Three Arrows Capital. When Three Arrows Capital filed for bankruptcy, it still owed over $10 billion to financiers and organizations like Voyager.
Voyager’s case, which falls under chapter 11, could not be resolved if Voyager’s bankruptcy was terminated, as stipulated by the law. The business would only solicit a maximum sum that ought to be sufficient to pay back all investors and creditors and repay any debts accrued before Voyager’s bankruptcy filing, including any outstanding loans.
Other Cooperations Took Notes
In 2022, the worst year for the cryptocurrency and NFT markets, one of the most convoluted cryptocurrency occurrences will come to a close with this completion of the Voyager Capital agreement after a rather ‘heated’ auction.
The bankruptcy case of Voyager serves as a reminder to investors and institutions to handle investor-raised assets responsibly. Unaware institutions and investors are presented with a startling consequence of the unsettling nature of the bitcoin markets.