Voyager Digital, which is seeking Chapter 11 protection, has filed an adversary complaint for an extension of the automatic stay pursuant to Section 362(a) or Section 105(a) of the Bankruptcy Code.

The relevant documents were submitted at the New York Southern Bankruptcy Court on August 10, 2022.

Voyager Digital Ltd and certain of its current and former directors and officers have been named as defendants in a putative class-action lawsuit, filed in Canada, arising from the debtor’s cryptocurrency trading, lending, and selling activities.

The Canadian Class Action is brought against Voyager Digital Ltd. as well as certain of the Debtors’ current and former directors and officers: Stephen Ehrlich (Debtors’ CEO and co-founder), Philip Eytan (Debtors’ non-executive Chairman and a director), Evan Psaropoulos (Debtors’ Chief Commercial Officer), Lewis Bateman (Debtors’ former Chief International Officer), Krisztian Toth (Debtor’s director), Jennifer Ackart (Debtor’s director), Glenn Stevens (Debtors’ director), and Brian Brooks (Debtors’ director) (collectively, the “D&Os”).

The Canadian Class Action alleges claims against the Debtor’s D&Os for statutory secondary market liability under Canadian securities law, and common-law negligent misrepresentation.

The Canadian Class Action is dependent on, and inextricably intertwined with, the Debtors’ alleged conduct. To prove many of the claims in that suit, the plaintiffs must first establish the underlying liability of the named directors and officers, which allegedly requires a vicarious finding of underlying wrongdoing by the Debtor, Voyager Digital Ltd. The Canadian Class Action may also require a determination as to whether the Debtors’ crypto-based financial products are securities at all—an unsettled legal issue in Canada and the United States.

The Canadian Class Action is currently stayed against Voyager Digital Ltd. pursuant to the automatic stay provided by Section 362. According to Voyager, the Court should extend the automatic stay pursuant to Section 362, or issue an injunction pursuant to Section 105 to enjoin the continuation of the Canadian Class Action as against the D&Os.

Voyager argues that the Debtors will be exposed to a significant risk of collateral estoppel, stare decisis, and evidentiary prejudice if the Canadian Class Action is permitted to proceed. The Debtors’ D&Os’ alleged conduct is the foundation for the Canadian Class Action’s claims, and any judicial decision on the claims against the D&Os could be used against all the Debtors (not just Voyager Digital Ltd.)

Also, some D&Os named in the Canadian Class Action are critical to the restructuring efforts of the Debtors, and particularly given the fast pace and anticipated short timetable of these chapter 11 cases, the Debtors need their D&Os focused on the restructuring, not defending a class action lawsuit in Canada.

Third, the Debtors will face likely indemnification claims if the Canadian Class Action is allowed to continue. The Articles of Voyager Digital Ltd. require indemnification of its directors for liabilities incurred in the course of their business as directors, and if the Canadian Class Action results in such liability, Voyager Digital Ltd. could be required to pay for such indemnification. As such, the Debtors could be directly affected should the Canadian Class Action proceed against the D&Os.

Further, the Debtors’ estates own property which may be depleted if the Canadian Class Action proceeds. Voyager Digital Ltd., the other Debtors, and the D&Os share insurance coverage for the Canadian Class Action. If prosecution of the Canadian Class Action continues, the Debtors and the D&Os will incur defense costs that could draw down these insurance policies, depleting an asset that the Debtors contend is the estates’ property.

For these reasons, the Debtors request that the Court extend the automatic state pursuant to Section 362 or issue an injunction pursuant to Section 105 to stay or enjoin the prosecution of the Canadian Class Action against the D&Os and Voyager Digital, Ltd. until the effective date of a restructuring plan in these Chapter 11 cases.