Disgruntled creditors of bankrupt cryptocurrency lending firm BlockFi have filed a new court filing in response to the company's latest restructuring plan.
On May 12, BlockFi outlined its Chapter 11 reorganization plan in a filing with the U.S. Bankruptcy Court in Trenton, New Jersey. The sale of BlockFi may not generate enough value for creditors because it owes nearly $1.3 billion to the top 50 creditors, the company said.
In response, BlockFi creditors filed another court document on May 15, alleging that BlockFi deliberately took steps to delay the trial. BlockFi’s creditors, represented by law firm Brown Rudnick, wrote that BlockFi sold about $240 million worth of cryptocurrencies before filing for bankruptcy in late November 2022. The creditor highlighted that the crypto lender sold assets "at the bottom," referring to a massive market slump following the FTX crash.
“Liquidating virtually all domestic cryptocurrencies in November 2022 is a very bad decision,” said creditors, who believe the decision cost them more than $100 million in the months since. Creditors also cited "unnecessary and unwanted tax consequences," adding that the sale amount had nothing to do with its bankruptcy. The content of the file is as follows: “The sale of $240 million in cryptocurrency has never been reasonably correlated with the need for bankruptcy funding, as no reasonable estimate would have put the cost of this bankruptcy at $240 million.”
The BlockFi client went on to say that the firm spent $22.5 million of client funds on a $30 million policy. According to creditors, this happened shortly after BlockFi sold digital assets before filing for bankruptcy. "By selling everything before filing, BlockFi provides itself with a near-unlimited budget, is largely immune to bankruptcy adversarial proceedings, and can spend as long as possible without the 'typical milestones' of DIP or cash collateral orders run its case confidently and contentiously," the creditors wrote.
The plaintiffs are calling on the court to close the case quickly by putting the estate assets "into the hands of new management". Creditors again said the situation did not appear to fit with the debtor's case agenda.
