FTX contagion spreads as BlockFi files for bankruptcy
The ripples of crypto exchange FTX’s bankruptcy continue, with the latest being today’s Chapter 11 bankruptcy filing by crypto exchange and lending company BlockFi.
BlockFi, which has had run-ins with regulators before including a $100 million fine assessed earlier this year following an order to stop offering crypto interest-bearing accounts, and eight of its affiliates announced that they commenced voluntary cases under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey (“the Court”).
BlockFi said that the bankruptcy filing was done to “stabilize its business” and provide the company with the opportunity to consummate a comprehensive restructuring transaction that maximizes value for all clients and other stakeholders.
As part of its restructuring efforts, BlockFi said it will focus on recovering all obligations owed to BlockFi by its counterparties, including FTX and associated corporate entities. Due to the recent collapse of FTX and its ensuing bankruptcy process, which remains ongoing, the company expects that recoveries from FTX will be delayed.
CNBC is reporting that the bankruptcy filing indicates that BlockFi lent $275 million to FTX US. Overall, the BlockFi filing points to more than 100,000 creditors, with liabilities and assets ranging from $1 billion to $10 billion.
“With the collapse of FTX, the BlockFi management team and board of directors immediately took action to protect clients and the Company,” said Mark Renzi of Berkeley Research Group, the Company’s financial advisor. “From inception, BlockFi has worked to positively shape the cryptocurrency industry and advance the sector. BlockFi looks forward to a transparent process that achieves the best outcome for all clients and other stakeholders.”
To ensure a smooth transition into Chapter 11, BlockFi said it is filing with the Court a series of customary motions to allow the Company to continue to operate its business. These “first day” motions include requests to pay employee wages and continue employee benefits without disruption, for which the Company expects to receive Court approval, as well as to establish a Key Employee Retention Plan to ensure the company retains trained internal resources for business-critical functions during the chapter 11 process. The Company today also initiated an internal plan to considerably reduce expenses, including labor costs.
The BlockFi filing states that its platform activity continues to be paused at this time. BlockFi has US$256.9 million in cash on hand, which is expected to provide sufficient liquidity to support certain operations during the restructuring process.
In parallel with these chapter 11 cases, BlockFi International Ltd. a Bermuda incorporated company, filed a petition with the Supreme Court of Bermuda for the appointment of joint provisional liquidators pursuant to section 161(e) of Bermuda’s Companies Act, 1981 in the near term. BlockFi currently anticipates that client claims will be addressed through the Chapter 11 process.
BlockFi bankruptcy advisors
Haynes and Boone LLP, Kirkland & Ellis LLP, and Cole Schotz P.C. are serving as legal counsel, Moelis & Company is serving as investment banker, and Berkeley Research Group is serving as financial advisor to BlockFi. C Street Advisory Group, LLC is serving as strategic restructuring and communications advisor to the Company.