Does the Committee support the plan?
Yes, the UCC supports this plan. The Committee believes that the Plan Settlement is the best resolution of these cases under the circumstances, and will maximize returns to all creditors compared to the alternatives – including a Chapter 7 liquidation. The Plan provides a path for a prompt and efficient exit to BlockFi’s bankruptcy and puts creditors in control of BlockFi’s ultimate wind down.
The Committee rigorously considered alternatives to the Plan, including litigating against confirmation of the Plan initially proposed by the Debtors.
Instead, through significant effort and weeks of negotiation, the Committee and the Debtors reached a settlement, the terms of which are incorporated into the Plan currently under consideration by creditors.
For more information, please see our full support letter here.
Why are different account types receiving different distributions?
Although we understand that each creditor is looking for as much recovery as possible, BlockFi offered a number of different products. Different products, in reality, were offered by different legal entities and customers contracted with a particular legal entity. Each of BlockFi’s legal entities holds particular assets and has specific liabilities asserted against it.
Under the proposed plan, each legal entity satisfies the claims asserted against it with the assets at that legal entity. Any other approach would require “substantive consolidation” which is only permitted in bankruptcy under circumstances that the Committee does not believe are present here. Accordingly, the greater recovery some account types receive is based on the legal entity they have a claim against having a more favorable ratio of assets to claims, rather than coming at the expense of other account types.
This being said, if BlockFi (in general) is able to defend itself successfully against the FTX and 3AC litigation, and liquidate the collateral posted by FTX/Alameda to secure its obligations to BlockFi, then all creditors may receive significantly greater recoveries – as high as 100% recoveries.
Can I withdraw my BIA funds when the wallet distributions are opened?
No. Only funds held in “BlockFi Wallet” can be withdrawn, under a prior order of the Bankruptcy Court. Withdrawals from those accounts are anticipated to begin this summer. Distributions on any other account – such as a BIA account – require a plan of reorganization (or other bankruptcy process).
When are non-Wallet distributions expected to begin if the Plan is confirmed?
The goal of the Committee and the Debtors is to commence a first interim distribution within 90 days of the plan becoming effective. This timeline depends on certain issues outside the control of the Debtors and the Committee, including regulatory issues and resolution of certain claims.
The amount of an initial distribution will depend, in part, on reserves required for disputed claims.
What will the ultimate amount of any distribution I receive be?
The amount you will receive on your claim will ultimately be based on the success of the Wind-Down Debtors in recovering additional funds – most notably, based on the claims against FTX/Alameda. We cannot estimate how long that will take or the ultimate likelihood of success.
Will I be able to receive distributions in-kind if the Plan is confirmed?
The Plan is designed to make distributions in-kind to the greatest extent practicable, based both on regulatory issues and practical issues regarding distributing cryptocurrency. The Committee anticipates that certain tokens will not be eligible for in-kind distributions due in part to regulatory concerns.
How does the convenience class work?
Claimants with claims under $3,000 are automatically placed in the convenience class. Claimants in this class will receive a flat 50% cash payout, not dependent on any litigation or claims resolution.
Parties with larger claims can voluntarily “elect” to this treatment by the voting deadline by reducing their claim to $3,000. Electing into convenience class treatment means that you are voting to accept the plan and a reduction of your claims to $3,000, but is entirely separate from granting or opting out of the third-party release. The Committee does not recommend that parties “opt in” to the convenience class.
What does the plan do about preference or “clawback” claims?
All BlockFi International claimants receive a full release of all preference claims, regardless of their vote on the plan or their decision to grant or opt out of the third-party release.
All claimants at any other entity, regardless of their vote on the plan or their decision to grant or opt out of the third-party release, receive a release of all preference claims EXCEPT with respect to withdrawals that aggregate $250,000 or more from Nov. 2 on. Similarly, any retained preference claims are preserved regardless of any claimants’ vote on the plan or decision to grant or opt out of the third-party release.
The Committee is not aware of any other estate causes of action against customers of BlockFi that will be preserved, other than the retained preference actions described above.
What does this plan achieve?
The Plan Settlement provides:
- The distributions to BlockFi customers will be, to the extent practicable, in cryptocurrency (which is designed to mitigate certain negative tax implications for customers).
- The wind-down of BlockFi (including litigation against and by FTX, Alameda, 3AC, Core Scientific, and other counterparties, including the United States) is controlled by representatives of BlockFi’s creditors (much like the Committee is representative of your interests) and no longer by the BlockFi’s professionals or advisors.
- Preservation of fraudulent transfer claims against BlockFi’s D&O insurance providers for the return of $22.5 million in premiums paid on the eve of bankruptcy.
- The Plan allows individual creditors to pursue direct claims against third parties, if desired, by “opting out” of the third-party releases.
What happens if I reject the Plan?
If the Plan does not receive adequate support from creditors, BlockFi may be unable to confirm the Plan. In such a case, BlockFi and the Committee will be sent back to the “drawing board” to propose a new plan or alternative exit from bankruptcy. We believe that rejection of the Plan will lead to incremental expense with little to no incremental benefit to creditors. We do not believe that rejection of the Plan will ultimately lead enhanced distributions for any class of creditors. The Plan on the table already proposes to wind-down BlockFi under creditor control in a cost-effective manner, including recovery of value from FTX/Alameda.