BlockFi Told to Pull Recovery Plan by Bankruptcy Court

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  • BlockFi has been told that its liquidation plan is premature, having not been signed off by the judge
  • The company had publicly claimed that it had agreed to liquidation, with some creditors getting full payouts
  • However, Judge Michael Kaplan told BlockFi that he hadn’t approved such plans and has ordered a hearing for June 20 

Bankrupt lender BlockFi has been told to retract its previously published wind-down plan by the court overseeing its bankruptcy. An emergency order issued on May 18 by New Jersey Bankruptcy Court Judge Michael Kaplan told BlockFi to issue a “corrective letter,” clarifying that the documents were posted prematurely and without court approval. The documents in question had indicated that approximately $1 billion in claims against commercial counterparts, such as the collapsed crypto exchange FTX and its trading arm Alameda, would play a significant role in ensuring creditors receive their funds.

BlockFi Forced to Walk Back Liquidation Claims

BlockFi had told creditors last week that it had decided to enter voluntary liquidation after coming to the conclusion that a sale of the platform was unlikely. It outlined a comprehensive strategy detailing the treatment of various claim holders, including secured tax claims, account holder claims, general unsecured claims, and others.

BlockFi stated its confidence that certain classes of claims could potentially see recoveries “as high as 100%”, although this depended on a $648 million lawsuit that BlockFi has filed against an investment vehicle owned by FTX founder Sam Bankman-Fried, which is far from certain.

Judge Says BlockFi Jumped the Gun

However, BlockFi seems to have jumped the gun on its plans, with the company posting a court-ordered letter on its official Twitter account which revealed that the estate’s “ability to solicit acceptances of its plan” is yet to be approved:

The letter emphasized that before any party can lawfully encourage acceptance or rejection of a reorganization plan, a disclosure statement must receive court approval, which it hasn’t yet received.

The positive response from creditors and other involved parties suggests that the plan will eventually get the go-ahead, but the court has ordered a hearing on June 20 to discuss the matter and solicit the official views from creditors