In a significant development in the cryptocurrency bankruptcy saga, bankrupt crypto firms FTX and BlockFi have received court approval to move forward with their claims settlement negotiations.
The decision, made by United States bankruptcy Judge Michael Kaplan, lifts the automatic stay on proceedings between the two entities, enabling FTX debtors to actively pursue their claims against BlockFi in the ongoing FTX bankruptcy process.
Progressing Towards Resolution
This legal progression comes after both FTX and BlockFi filed for Chapter 11 bankruptcy status in November 2022, following the dramatic collapse of FTX earlier that month.
BlockFi’s involvement in the FTX debacle includes approximately $355 million in funds frozen on the FTX platform and an additional debt of $671 million owed to them by Alameda Research, FTX’s sister company.
The court’s order also specifies that FTX debtors are not entitled to receive any affirmative distribution from BlockFi debtors.
Additionally, both parties have been directed to file for mediation with the U.S. Bankruptcy Court for the District of Delaware promptly, with the mediation process slated to commence no later than December 24, 2023.
Evidence and Impact of the Collapse
The unraveling of FTX, once a titan in the crypto world, has had far-reaching impacts, with BlockFi’s financial stability severely affected by its collapse.
Zac Prince, CEO of BlockFi, provided crucial testimony against Sam Bankman-Fried, the former CEO of FTX, during his criminal trial.
Prince’s testimony highlighted that BlockFi’s bankruptcy filing was a direct consequence of FTX’s implosion, despite the ongoing bear market conditions. BlockFi’s losses in the aftermath of the FTX and Alameda collapse were estimated to be over a billion dollars.
Amid these proceedings, BlockFi had previously received court permission in August to repay its U.S.-based Wallet customers, although withdrawals remained restricted at that time.
In September, BlockFi creditors approved a bankruptcy restructuring plan, which received court approval later that month.
Furthermore, in October, BlockFi announced its intentions to start repaying some of its creditors, with wallet customer withdrawals becoming available to nearly all clients.
The forward movement in the claims settlement between FTX and BlockFi marks a pivotal step in addressing the repercussions of one of the most significant collapses in the cryptocurrency sector.
As the mediation process unfolds, it is expected to shed further light on the intricate web of financial transactions and obligations between these two major players in the crypto industry.
The outcome of this settlement will be closely watched, not only by those directly involved but also by the broader crypto community, as it navigates through the aftermath of this unprecedented bankruptcy scenario.