BlockFi has filed a motion to allow its customers to withdraw digital assets not legally owned by the corporation but only held for storage in BlockFi systems. According to Forbes, the motion arrives as a welcome opportunity for customers who have had their assets blocked after BlockFi filed for Chapter 11 Bankruptcy in New Jersey in November 2022.

The experienced New Jersey bankruptcy attorneys at Straffi & Straffi Attorneys-at-Law understand how this motion can cause additional confusion to stakeholders who are concerned about their frozen assets.

The Chapter 11 bankruptcy of BlockFi understandably caused a stir in the market with the announcement of the filing coming after news of the FTX collapse and its sister company Alameda Research’s embroilment in federal fraud complaints. BlockFi announced that significant exposure to FTX was one of the reasons for filing their bankruptcy and was reported to be in debt with almost 100,000 creditors. If you have availed of BlockFi services and are concerned about how the company’s bankruptcy filing can impact you, getting the help of an experienced New Jersey Chapter 11 bankruptcy attorney may be beneficial. Call Straffi & Straffi Attorneys-at-Law today at (732) 341-3800 to learn more about how we can help.

The company, originally valued at $3 billion in March 2021, has had its share of ups and downs in recent times. In February, the SEC issued BlockFi a penalty for failing to register details about its crypto products in addition to violating the Investment Company Act of 1940.

In July 2022, FTX had made an option to buy BlockFi for up to $240 million, including a $400 credit facility for the company. BlockFi had been in the process of moving the company’s assets to FTX for custody following the option and has also given loans to Alameda Research. In their Q2 business report, BlockFi also announced that it had deployable client assets valued at $3.9 billion. The outward stability of the company after the SEC decision and the initial stages of its partnership with FTX gave a sense of security which is why the sudden downward spiral in November caused alarm to the whole cryptocurrency space.

Through a statement on its official Twitter account on November 11, 2022, BlockFi announced that the company was limiting client withdrawals following uncertainty on where the collateral for the loans they provided Alameda and the funding for their credit line with FTX came from. BlockFi officials also stated that they found out about the news of FTX’s bankruptcy filing on the same day and only through Twitter rather than through more official channels. Bloomberg reported that the majority of BlockFi’s assets have fortunately not yet been moved.

BlockFi has only filed a motion to the U.S. Bankruptcy Court to allow customers access to their BlockFi Wallet Accounts. BlockFi has also sought similar relief from the Supreme Court of Bermuda for access to accounts held in BlockFi International Ltd. Customers with BlockFi Interest Accounts still don’t have access to their accounts as of writing.

According to the proposal it submitted to the US Bankruptcy Court, BlockFi plans to compensate its creditors with a mixture of cash, coins, and stock in the reorganized company. The company reportedly has $256.9 million in liquidated assets set aside to fund necessary operations during the restructuring.

It is expected that the initial hearings with the U.S. Bankruptcy Court and the Supreme Court of Bermuda, scheduled for January 9, 2023 and January 13, 2023 respectively, will shed more light on the situation.

Chapter 11 Bankruptcy Explained

BlockFi customers understandably have a lot of questions about what’s in store for them, especially customers with suspended funds and customers with outstanding loans. For some individuals, it may even be the first time they’ve heard of a Chapter 11 bankruptcy. New Jersey Chapter 11 bankruptcy attorney Daniel Straffi of Straffi & Straffi explains what a Chapter 11 bankruptcy is and how it can potentially affect customers as in the case of BlockFi.

A Chapter 11 bankruptcy, also known as reorganization bankruptcy, allows the debtor, in this case, BlockFi, to become a debtor in possession of their properties and assets. A Chapter 11 bankruptcy allows the debtor to borrow new credit subject to the approval of the Court and use any assets they have to pay off their creditors. BlockFi filed for voluntary bankruptcy as is allowed under the law. To file the bankruptcy, BlockFi was also required to submit a disclosure statement containing information about its assets and liabilities that allows any creditors they have to get an informed judgment about BlockFi’s plan for reorganization.

Under a Chapter 11 bankruptcy, the value of the personal assets of stockholders in a “corporation as debtor” case such as BlockFi’s will not be at risk, only the value of their investment in the company’s stock which can be subject to external factors. By filing a Chapter 11 bankruptcy, BlockFi is also allowed to act in the capacity of a trustee. BlockFi is required to account for property, examine and object to any claims made by creditors, and file reports regarding the progress as required by the US Bankruptcy Court. Additionally, BlockFi is also subject to the administrative oversight of a US Trustee who can question them regarding their acts, conduct, and property concerning their bankruptcy case.

BlockFi would also be required to report monthly income and expenses, any additional bank accounts they have created, employee salaries, and taxes. The US Trustee can also create a Creditor’s Committee that allows the debtor’s creditors to investigate the operation of the business and formulate a reorganization plan to facilitate proper management of the business in accordance with the plan.

A Chapter 11 bankruptcy can take anywhere from 17 months to 5 years. For investors and creditors, this can be a significant amount of time. Getting the help of an experienced New Jersey Chapter 11 bankruptcy attorney may prove to be crucial in protecting the rights of investors and creditors.

Top-rated New Jersey bankruptcy attorney Daniel Straffi Jr. may be able to assist in filing a Proof of Claim to BlockFi investors and creditors who want to safeguard their interests following the Chapter 11 reorganization. Attorney Straffi has worked with individuals and corporations in protecting their rights in bankruptcy-related cases. At Straffi & Straffi Attorneys-at-Law, our New Jersey bankruptcy lawyers have dedicated their practice to helping New Jersey residents and businesses gain financial freedom and allowing them to get a fresh start. To learn more about how we can help, call us today to schedule a free consultation at (732) 341-3800.