BlockFi has filed for bankruptcy under Chapter 11 in the US courts.
The news was being talked about over the last couple of weeks as BlockFi had been tied to the future of FTX, a crypto firm that filed for bankruptcy earlier this month.
BlockFi distributed the news of its decision to allow the courts to decide its future, in a statement on its website.
BlockFi today voluntarily filed petitions for Chapter 11 reorganization. You will be able to find the official announcement here.
This action follows the shocking events surrounding FTX and associated corporate entities (“FTX”) and the difficult but necessary decision we made as a result to pause most activities on our platform.
Since the pause, our team has explored every strategic option and alternative available to us, and has remained laser-focused on our primary objective of doing the best we can for our clients. These Chapter 11 cases will enable BlockFi to stabilize the business and provide BlockFi with the opportunity to consummate a reorganization plan that maximizes value for all stakeholders, including our valued clients.
Rest assured, we will continue to work on recovering all obligations owed to BlockFi as promptly as practicable.
BlockFi also published a press release adding that it had filed in the “US Bankruptcy Court for the District of New Jersey to stabilize its business.
BlockFi stated that its platform activity continues on pause at this time adding that it has $256.9 million in cash on hand, which is expected to be sufficient to support certain operations during the restructuring process.
At the same time, the company stated that BlockFi International Ltd., a Bermuda-incorporated company, has filed a petition with the Supreme Court of Bermuda for the appointment of joint provisional liquidators.
BlockFi said it was acting in the best interest of its clients and will work to provide regular updates on the proceedings.
The initial filing with the court included a list of creditors with the 50 largest unsecured claims who were not insiders.
The single largest unsecured creditor is Ankura Trust Company, with over $729 million outstanding. The Securities and Exchange Commission (SEC) was on the list for $30 million, an amount that was most likely tied to a settlement with the SEC from earlier this year. The settlement was for $100 million, involving its crypto lending service and claims by the SEC that it had failed to register the offering. While the settlement was made without admission to the allegations, it was certainly the first nail in the virtual coffin.
Mark Renzi, BlockFi’s financial advisor from Berkeley Research Group, commented on the company’s filing:
“With the collapse of FTX, the BlockFi management team and board of directors immediately took action to protect clients and the Company. From [its] 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.”
BlockFi was once valued at $3 billion in a funding round when the firm raised $350 million in the spring of 2021.
Answers to some common questions by BlockFi after Chapter 11
1. What did BlockFi announce?
BlockFi today initiated a process to stabilize its business and provide the company with the opportunity to consummate a reorganization that maximizes value for all stakeholders. You will be able to find the official announcement here.
To implement the restructuring, BlockFi filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey.
2. What is Chapter 11?
Chapter 11 is a process in the U.S. through which companies restructure their obligations while operations continue.
3. Why did BlockFi choose to file Chapter 11 bankruptcy?
BlockFi’s chapter 11 cases will enable BlockFi to stabilize its business and provide BlockFi with the opportunity to consummate a reorganization that maximizes value for all stakeholders.
This action follows the shocking events surrounding FTX and associated corporate entities (“FTX”) and the difficult but necessary decision we made as a result to pause most activities on our platform.
The court-supervised restructuring process is transparent and encourages dialogue between all stakeholders.
4. Does BlockFi hold 100% of client deposits on FTX?
The rumors that a majority of BlockFi assets are held at FTX are false. However, as shared, we do have significant exposure to FTX and associated corporate entities that encompasses obligations owed to us by Alameda, assets held at FTX.com, and undrawn amounts from our credit line with FTX.US.
5. What impact does FTX’s Chapter 11 have on BlockFi?
We were shocked by the news regarding FTX and Alameda. We, like the rest of the world, found out about this situation through Twitter. Given the lack of clarity on the status of FTX.com, FTX.US, and Alameda, we are not able to operate business as usual.
While we will continue to work on recovering all obligations owed to BlockFi, we expect that the recovery of the obligations owed to us by FTX will be delayed as FTX works through its own bankruptcy process. Our priority has been and will continue to be to protect our clients and their interests.
You can find additional information about FTX’s chapter 11 cases at https://cases.ra.kroll.com/FTX/.
6. What does this mean for clients?
Acting in the best interest of our clients is our top priority and continues to guide our path forward. We will continue to communicate with our clients through the process to ensure they hear directly from us.
We are not requesting authority to restore platform activity at this time. We currently anticipate that clients’ claims will be addressed through the chapter 11 process.
7. Should I delete my BlockFi app or account?
We encourage clients to maintain their BlockFi app and account at this time.
At this time, withdrawals from BlockFi continue to be paused. We also continue to ask clients not to submit any deposits to BlockFi Wallet or Interest Accounts.
8. When will BlockFi complete the restructuring process?
BlockFi is seeking to restructure and exit chapter 11 pursuant to a chapter 11 plan as promptly as practicable. The ultimate timing of a chapter 11 case can vary and depends on several unknowns. We respect the Chapter 11 process and are committed to transparency and open dialogue with all stakeholders.
9. How will I be kept informed about the progress of the bankruptcy?
We are committed to keeping stakeholders informed throughout this process and will also continue to provide updates to our clients through official BlockFi channels, including Twitter and our blog. While we intend to communicate as frequently as possible going forward, we anticipate that this will be less frequent than what our clients and other stakeholders are used to.
Additional information regarding our chapter 11 cases, including court documents and claim information, can be found by visiting BlockFi’s claims agent Kroll at https://restructuring.ra.kroll.com/blockfi. Clients with questions about the process may call Kroll at (888) 773-0375 (Toll Free) or (646) 440-4371 (International), or email blockfiinfo@ra.kroll.com.
10. What is BlockFi doing to protect my information and crypto assets?
Data and asset security remain a top priority for all at BlockFi. We are taking proactive steps to secure both platform assets and information.
11. I have additional questions about the filing. How can I obtain more information?
Additional information regarding our chapter 11 cases, including court documents and claim information, can be found by visiting BlockFi’s claims agent Kroll at https://restructuring.ra.kroll.com/blockfi. Clients with questions about the process may call Kroll at (888) 773-0375 (Toll Free) or (646) 440-4371 (International), or email blockfiinfo@ra.kroll.com.
For product-related questions, you are welcome to contact our client success team at https://www.blockfi.com/contact/.
Retail Loans
12. What does this mean for my retail loans and retail loan collateral?
At this time, clients do not have the ability to post new funds to BlockFi. As a result, we put your loan into administrative forbearance.
Any amounts due, including interest and maturity payments, are placed on hold until further notice. The interest rate on your loan will be set to 0% from November 11, 2022 onwards and clients will not be charged additional interest if or when a loan enters delinquency after November 11, 2022. Your loan will not be reported as delinquent to any credit bureaus.
You are not expected to make a payment at maturity while your loan is on hold and there will be no late fees associated with any payments, including at maturity. Additionally, autopay has been turned off for your account, if it was enabled.
Should you have questions about this process, you are welcome to contact our client success team at https://www.blockfi.com/contact/.
13. Why is my retail loan showing as delinquent?
For US-based clients, our loan servicing provider, Scratch, will show your loans as delinquent on their system, but given the 0% interest rate, your loan will not accrue any interest or late penalties. Your loan will not be reported as delinquent to any credit bureaus. Clients can disregard the automatically generated email from Scratch at the time of maturity notifying them of delinquency on Scratch’s system.
14. Is BlockFi liquidating retail loans if the loan reaches liquidation loan-to-value (“LTV”) while platform activities are paused?
At this time, clients do not have the ability to post new funds to BlockFi. As a result, we are putting your loan into administrative forbearance. BlockFi has paused margin call requirements and auto liquidations at predefined loan-to-value levels.
