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As of 2022, a definition that crypto investors have heard many times and is now on the agenda with Evergrande. In the general framework, it has become necessary for us to deal with the details of this bankruptcy application, which is similar to a declaration of bankruptcy. Now let’s take a look at what Chapter 11 bankruptcy or Chapter 11 bankruptcy is.
What Does Chapter 11 Bankruptcy Filing Mean?
In the complex world of finance and business, bankruptcy serves as an important mechanism that allows troubled companies to reorganize and regain financial stability. Finance In the general framework, bankruptcy, which is similar to a concordat process in many countries, allows companies to resume their activities if they follow the right strategy after the Chapter 11 bankruptcy process.
One of the most well-known forms of bankruptcy, Chapter 11 in the United States is a legal process that allows businesses to restructure their operations while protecting them from urgent demands of creditors. Commonly known as “reorganization bankruptcy”, Chapter 11 bankruptcy provides both large and small companies with the opportunity to improve their financial situation while continuing their operations.
This chapter allows the debtor (company) to propose a plan outlining how it will address its financial obligations, including making repayments to creditors over an extended period, reducing debts, and reorganizing operations for better efficiency and profitability.
Similar to the concordat process in many countries, if the company follows the right strategy after the Chapter 11 bankruptcy process, it can resume its activities.
The main objectives of Chapter 11 bankruptcy are twofold: to provide the debtor with an opportunity to reorganize its financial affairs and to maximize returns for creditors. Chapter 11 aims to facilitate the company’s return to profitability, maintain employment and business continuity by providing the debtor with the chance to renew its operations and financial structure.
This process consists of several steps;
- Bankruptcy application: The process begins with the troubled company filing a Chapter 11 bankruptcy petition with the appropriate federal bankruptcy court.
- Automatic stay: Upon filing, an “automatic stay” is imposed that halts most creditor actions against the company. This provides temporary relief from creditor pressure, allowing for the formulation of a reorganization plan.
- Formulating a plan: The debtor is usually given a limited time to propose only one reorganization plan. This plan details how the company will address its debts, reduce costs, and reorganize its operations. The plan is reviewed and approved by the court. For example, Genesis bankruptcy is currently at this stage.
- Creditor voting: Creditors vote to accept or reject the reorganization plan.
- Confirmation: The court then reviews the plan to ensure it meets legal requirements and is fair to all parties involved. If approved, the plan is confirmed, and the debtor begins implementing the plan.
- Implementation: The company makes the necessary changes to operate under the approved plan, fulfilling its commitments and restoring financial viability.
How does this process work or work in crypto companies?
Chapter 11 Bankruptcies in Crypto
On August 15, 2023, Chapter 11 bankruptcy protection was initiated in Delaware. Bittrex, on the other hand, applied on May 11. The bankruptcy application was related to multiple organizations, including Seattle-based Bittrex Inc., two Bittrex entities located in Malta, and an affiliated entity named Desolation Holdings LLC.
Genesis Global Capital filed for bankruptcy in the Southern District of New York on January 11. According to the filing on January 19, the company’s liabilities and assets are in the range of 1 billion to 10 billion dollars. The company is expected to finalize its payment plan this month. The recent news is that instead of the $4 billion debt, they reached an agreement with FTX for $175 million.
After the sudden bankruptcy of the Bahamian exchange in November 2022, $6 billion was withdrawn from FTX within 72 hours. The bankruptcy committee is still collecting the company’s assets, and no specific date has been set for payments. Celsius, Voyager, and BlockFi were the latest companies to file for Chapter 11 bankruptcy in crypto. Celsius and Voyager started paying off their assets to customers. However, since the company does not hold customer assets in a 1:1 ratio, victims can only receive a fraction of their money.
