Coinspeaker Genesis Wins Court Approval to Refund $3B in Bankruptcy Case
Genesis Global Capital, a cryptocurrency trading and lending company, has secured court approval to refund $3 billion to its customers. This decision follows Genesis’s liquidity crisis in November 2022, triggered by substantial exposure to Three Arrows Capital (3AC) and the collapsed crypto exchange FTX.
The company’s troubles began 20 months ago when it suspended deposits and withdrawals on its platform, leading to its Chapter 11 bankruptcy protection filing in the United States.
However, the case reached a significant milestone when US Bankruptcy Judge Sean Lane sanctioned Genesis’s reorganizational plan.
The plan entails refunding 77% of the company’s debts to customers, in both cash and digital assets, despite opposition from various parties, including Genesis’s parent company, Digital Currency Group (DCG), and its Crypto Creditors Ad Hoc Group.
DCG Challenges Genesis’s Restructuring Plan
These entities lodged a separate complaint with the US Bankruptcy Court in the Southern District of New York (Manhattan), seeking to reduce the proposed payout percentage recommended by independent advisors overseeing the Chapter 11 proceedings for Genesis.
DCG contended that Genesis should repay a lower percentage to customers, including high-value clients and users of Gemini Earn, a lending program operated together by Genesis and Gemini.
Additionally, the companies argued that it should be entitled to an equity dividend, while crypto-denominated customers receive only a fraction of the lent coins, resulting in an unjust enrichment for Genesis creditors at DCG’s expense.
DCG also advocated for repayments to be based on the crypto asset prices at the time Genesis declared bankruptcy in January 2023, when Bitcoin (BTC) was valued at around $24,000.
US Bankruptcy Judge Rules in Favour of Genesis
However, Judge Lane dismissed this complaint, ruling in favor of Genesis’s proposed restructuring plan. This decision mandates the company to repay $3 billion to the affected customers and creditors, marking a critical step in resolving its liquidity crisis.
The judge also determined that creditors owed fiat currencies, such as the US dollar, will be treated differently from those owed cryptocurrencies.
“Due to the increase in price of digital assets after the time a resolution was reached, it is currently anticipated that those creditors whose claims are denominated in US dollars will be receiving 100% of their loan balance (deferring payment of post-petition interest)” while creditors with claims in cryptocurrency will bear the shortfall in funds,” the court document reads.
Despite the approval to return nearly 80% of customers’ funds, Genesis does not have enough digital assets, such as Bitcoin (BTC) and Ethereum (Ether), on its balance sheet to allow those who lent their crypto assets to the firm to recover the full amount.
However, according to a 135-page court document, the company has included provisions in its bankruptcy plan detailing how it intends to make up the remaining funds.
Court Removes DCG from Eligible Creditors
When the court dismissed DCG’s complaint, the judge ruled that the company lacked legal standing to challenge the bankruptcy plan. Consequently, DCG has been excluded from the list of entities eligible for payouts.
The court revealed that the Debtors’ estates lacked sufficient value to enable DCG any recovery as an equity holder after unsecured creditors had been paid.
“Given the size of the creditor claims, DCG is out of the money as an equity holder by billions of dollars, even if the Court valued creditor claims using the method DCG proposes,” the court document reads.
However, the company has the option to appeal the judge’s decision in court.
A Welcomed Development
Meanwhile, with the approved plan to distribute $3 billion to customers, Gemini is poised to commence fund distributions to those affected by the Genesis liquidity crisis in 2022 through its Earn program.
The company hailed the approval on Friday as a “welcomed development,” announcing that it would initiate customer refunds next month.
Initially, approximately 97% of the owed funds will be disbursed to customers who have patiently waited for two years.
The reimbursements will be made in kind, ensuring that customers receive the precise amount of digital assets they initially deposited to the platform.
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Genesis Wins Court Approval to Refund $3B in Bankruptcy Case