What does it mean that BlockFi filed for Chapter 11 Bankruptcy?

Chapter 11 is the form of bankruptcy usually used by businesses. Any company can voluntarily file for Chapter 11. Doing so puts an immediate freeze (called the “automatic stay”) on all efforts to seize company assets, by litigation or otherwise. When BlockFi filed for Chapter 11 protection (in November 2022), the automatic stay immediately went into effect. As a result, customers could not reclaim money from the BlockFi platform.

How long does the automatic stay last?

The automatic stay does not remain in place forever. You will eventually receive value back. This typically happens when: (1) the Bankruptcy Court approves a “plan” (it can be a “plan of reorganization” or a “plan of liquidation”) that provides for distributions to the creditors; or (ii) the Chapter 11 is converted to a Chapter 7 case, where a trustee is appointed to liquidate the assets and distribute the proceeds to creditors. A plan must meet numerous evidentiary requirements before it can be approved by the Bankruptcy Court, including sufficient proof that it offers creditors more value than they will receive in a Chapter 7 liquidation. For BlockFi – which is not now an operational business – these evidentiary requirements are difficult.

That said, the Bankruptcy Code gives BlockFi time to explore its options and work towards a plan that the Bankruptcy Court can ultimately approve. That is where the case stands at present. We expect the case will continue in this “exploration” phase for several more months.

What is the Official Committee of Unsecured Creditors?

You might think of the Official Committee of Unsecured Creditors (also referred to as the “Official Creditors Committee” or just the “Committee”) as BlockFi’s “adversary” in this case. Chapter 11 is, in many respects, an adversary process, like other kinds of litigation. But, the Bankruptcy Code does not intend for the company and Committee to litigate all issues to judgment. It hopes that the sides can work together, ultimately reaching agreement as to how best the case should come to an end.

The Committee is appointed by the U.S. federal government (specifically, the Department of Justice) in every Chapter 11 case. It is comprised of unsecured creditors that the government believes: (i) individually, are sophisticated, unconflicted, and otherwise best able to perform the duties of Committee membership; and (ii) collectively, are representative of all of the company’s unsecured creditors. The Official Committee owes a fiduciary duty to the unsecured creditor community, as a whole, and works to maximize value for all unsecured creditors. Committee members volunteer for this assignment and they do not receive compensation for their service. That is true even though it is a very time consuming and often quite a difficult job.

What is the make-up of the BlockFi Committee?

The BlockFi Committee is comprised of nine creditors. They are all sophisticated individuals who collectively entrusted BlockFi with a very considerable amount of money. The Committee is cross-representative. It includes customers: (i) holding interest accounts and wallets; (ii) who participated in private client programs, lending and trading activities; (iii) who invested with BlockFi domestically and with BlockFi International; and (iv) who instructed BlockFi to transfer funds into wallet accounts after the “pause” went into effect, as well as customers who did not. The Committee is working diligently to understand what happened and how to return as much money as possible, as soon as possible, to BlockFi’s customers. This requires Committee members to dedicate many hours every week to this case, despite their work and family commitments. They are doing this (again, without compensation) because – just like you – they want their money back.

Does the Committee have professional assistance?

Yes. The Committee has retained lawyers and financial advisors who are specialists in Chapter 11 and the particular cryptocurrency issues arising in BlockFi’s case. The professionals are working tirelessly to help the Committee learn the underlying facts, chart the best available strategy, engage with BlockFi about how to best move the case forward, and appear before the Bankruptcy Court. The Committee has also instructed its professionals to communicate with customers, so that BlockFi’s unsecured creditors receive information as the case progresses. This website and the Committee’s twitter handle is intended to keep BlockFi’s unsecured creditors updated on the status of the bankruptcy case.

What do creditors need to do in terms of the bankruptcy proceeding?

The Committee is intended to be the representative body handling most case issues for unsecured creditors. Unsecured creditors are not expected to dedicate a comparable amount of time (and personally spend the money) necessary to figure out the best solution for BlockFi’s bankruptcy. You are, of course, welcome to participate in the case as much as you would like. But, please know that the Committee is working extremely hard on behalf of all unsecured creditors, including you.

How do I ensure that my claim is properly calculated and considered in the case?

Each creditor can file a “proof of claim” in the case. This is your statement as to how much you believe BlockFi owes you, and it is a necessary filing if you believe that BlockFi has incorrectly recorded your debt in its books and records (called, in bankruptcy, the company’s “Schedules”). BlockFi is reaching out to creditors to provide claim amounts as presently listed on the Schedules. You do not, however, need to wait on that outreach from BlockFi. You can go ahead and file your proof of claim now, and it is not a difficult document to fill out and return.

The deadline for filing your proof of claim is March 31, 2023, at 5:00 p.m. Eastern Time. Each creditor should file his/her proof of claim so that it is received by this date. This deadline applies regardless of whether you have or have not received a communication from BlockFi respecting your claim amount as listed on the Schedules. Instructions for preparing and filing the proof of claim can be found here.

Is this relevant for international creditors?

Yes. It is relevant to all creditors, U.S.-domestic and international, regardless of which BlockFi entity that you entrusted with your money. All BlockFi entities are all part of the Chapter 11 process, and so too are all BlockFi customers and creditors.

Will I recover my money?

BlockFi is in a Chapter 11 bankruptcy because it does not have enough money to immediately repay its creditors and honor customer returns. The bankruptcy estate does, however, have a considerable amount of assets, some that are easy to value (e.g., cash on hand) and others that are less easy to value (e.g., general business assets). BlockFi also had significant business dealings with FTX. How much creditors ultimate recover and when are questions that depends, in part, on how much and how easily BlockFi can recoup value from FTX’s bankruptcy. As a result, it is difficult to predict how much of your money you will receive and when, but please know that we are working diligently to find the best resolution for you.

What can I expect next?

We will be providing relevant updates on this site and our Twitter page.

I have questions about how to file a proof of claim?  Can you help explain that process?

We have created a separate FAQ that address this.  View the Proof of Claim FAQ