The news of BlockFi bankruptcy has been circulating in the crypto industry for quite some days. People have been saying that BlockFi, a crypto lender, has gone penniless and that it had to file for Chapter 11 similar to FTX. On the 10th of November, when people were already discussing FTX’s merciless collapse, BlockFi declared that their withdrawals are still live. However, the early next day, the company announced that withdrawal has been indefinitely suspended.
Following this, on the 14th of November BlockFi declared that they possessed sufficient liquidity that will help them to keep going. Nevertheless, as early as the 23rd of November, the company withdrew its statement. Yesterday, the company has published an official announcement of the Chapter 11 application on its official website. They also took to Twitter to disclose the official announcement.
Today, BlockFi filed voluntary cases under Chapter 11 of the U.S. Bankruptcy Code.https://t.co/adaAx6me4r— BlockFi (@BlockFi) November 28, 2022
BlockFi Bankruptcy: The Filing Of Chapter 11
The name “Chapter 11” comes from the fact that the law is the 11th chapter of the US Bankruptcy Code or US Bankruptcy Law. This is the key provision of the law. The important feature of Chapter 11 is to permit the companies using it to “kick off a restructuring process despite filing for bankruptcy.”
In simple words, filing for Chapter 11 refers to the fact that the company is penniless and is declared bankrupt. This is because it no longer possesses enough resources to clear all the debts as they fall due. However, this does not mean that the company is having a primary objective of being liquidated and closed asap. That said, this does not rule out the possibility that the company might end up getting liquidated.
In such a case, it must be noted that the unfulfilled customer withdrawals must be considered debts. Thus, the company suspending withdrawals indefinitely is an indication that the company is insolvent and that they are in bankruptcy. Considering the case, it might be a possibility that perhaps the management team was aware of the BlockFi bankruptcy as early as the 11th of November. They probably have guessed that soon they have to file for Chapter 11. Irrespective of this, on the 14th of November, they publicly claimed to have enough liquidity that can push them forward.
Such an attitude suggests that it is well possible that they have lied to retain customers’ faith and make the restructuring point seem like a fact. That said, it has been seen that all the companies that have filed for Chapter 11 in the past have gone into liquidation. Owing to the BlockFi bankruptcy, the activities of the company to date have already stopped. The use of Chapter 11 might permit them to recover. But this would take months or years and is only possible if the funds can recover the shortfalls.
What Is BlockFi Up To?
In the official statement, the company has already mentioned that they have already initiated the restructuring process for stabilizing the process and maximizing the value for all the customers and stakeholders. However, they did not mention that they are looking forward to reopening their operations anytime soon. This is partly due to the fact that the result of the restructuring process at this moment is very uncertain.
They have also revealed that eight subsidiaries are working on the restructuring. Additionally, the Chapter 11 petition has been made to the US Bankruptcy Court for the District of New Jersey. Their statement seems to target FTX and the FTX collapse blaming their insolvency on the company or having uncollectible debts with them. BlockFi stated,
“Due to the recent collapse of FTX and its ensuing bankruptcy process, which remains ongoing, the Company expects that recoveries from FTX will be delayed.”
As the news goes, BlockFi is currently laying off several employees and keeping just the key ones although the staff reduction has already started back in June. This was solely owing to a sharp drop in profits. In the end, various companies including Voyager have been a failed crypto company. Thus, the company will miss out on possible suitors for the company takeover.