Voyager Digital seeks to liquidate cryptocurrency assets from customer accounts that hold a negative U.S. dollar balance. This happens less than a fortnight after the company filed its petition for Chapter 11 bankruptcy in the New York Southern Bankruptcy Court.

On July 14, 2022, Voyager filed a motion in the Court asking for authorization of liquidating cryptocurrency and sweeping cash from third-party exchanges.

The company explains that, consistent with past practice, Voyager have historically liquidated cryptocurrency assets from customer accounts that hold a negative U.S. dollar balance and swept such cash into the Debtors’ operating accounts.

Each day that an account with a negative balance is not liquidated, it subjects the Debtors to the risk of price depreciation in the cryptocurrency. For instance, if a customer has $5,000 in cryptocurrency and a negative -$5,000 USD balance in their account today, liquidating their cryptocurrency will generate all cash needed to cover the debit balance, adding the full value of the shortfall back into the Debtors’ estates.

However, if tomorrow the cryptocurrency is worth $4,000, upon liquidation, the Debtors would only receive 80% of the shortfall of USD.

Given the current market volatility, having the authority, but not the obligation, to liquidate customer accounts with a negative balance will serve to protect and preserve estate assets for the benefit of all customers, Voyager argues. Therefore, the practice of liquidating cryptocurrency from negative customer accounts promotes the healthy operation of the Debtors’ platform and will inject further liquidity into the Debtors’ business, thereby promoting the Debtors’ ability to fund these chapter 11 cases.

Accordingly, the Debtors seek authority, but not direction, to continue liquidating cryptocurrency from negative customer accounts in the ordinary course of business and consistent with past practice prior to the Freeze Date.

In connection with liquidating cryptocurrency, the Debtors also seek authority to sweep cryptocurrency related to negative accounts that have been liquidated prior to the Petition Date into the Debtors’ operating accounts. Such cash is currently being held at the various third-party exchanges, including, among others, Coinbase Trust Company, LLC.