Digital Currency Group Challenges Genesis Capital's Bankruptcy Plan for Violating Bankruptcy Code
Summary:
Digital Currency Group (DCG), the parent company of Genesis Capital, has opposed Genesis' bankruptcy scheme, claiming it breaches the Bankruptcy Code. Genesis proposed payment to its customers that exceeds what is legally permitted. While DCG supports a plan where creditors get paid in full, it argues that Genesis's current proposal unfairly benefits a small controlling group of creditors, therefore suggesting a violation of the Bankruptcy Code. Genesis, hit hard by the 2022 cryptocurrency bear market, has been trying to liquidate $1.6 billion of its assets after failed settlements with DCG and another business associate, Gemini. The crypto lender filed for bankruptcy in January 2023 due to a liquidity crisis, owing over $3.5 billion to its top 50 creditors, including Gemini.
The parent company of Genesis Capital, a crypto lender now facing bankruptcy, Digital Currency Group (DCG), has opposed Genesis' bankruptcy strategy, contending that it goes against the bankruptcy rules. DCG put forth a motion on February 5, challenging the bankruptcy course of action since Genesis, a DCG subsidiary, proposed reimbursing its clients more than what the law allows. DCG stated in the court filing that they are in favor of a scheme that reimburses creditors in full, as sufficient assets are currently available to do that. The company, however, argues that no such proposal has been put forward by the debtors.
Instead, the debtors, in alliance with Genesis' uninsured creditors and Genesis lenders, have outlined a "forced plan" which compensates uninsured creditors with hundreds of millions of dollars over their claim amount at the time of petition, according to DCG's argument. This strategy, DCG suggests, unduly favors a minor dominant cluster of creditors, violating the Bankruptcy Code. Furthermore, the firm asserts it also deprives DCG of economic and corporate governance rights, indicating a lack of good faith, hence DCG cannot back this plan and the court should not either.
After being unsuccessful in negotiating with DCG and former business partner Gemini, Genesis has been attempting to liquidate $1.6 billion of its assets. Many cryptocurrency lending firms like Genesis were hit hard by the 2022 cryptocurrency bear market. The company filed for bankruptcy in January 2023, after they stopped withdrawals due to a liquidity emergency in November 2022. Reportedly, the firm had an outstanding debt of over $3.5 billion to its top 50 clients, such as Gemini.
Genesis and its sister companies, on January 31, 2024, announced they had reached an agreement with the United States Securities and Exchange Commission (SEC) for a $21 million settlement. The company's legal team suggested a February 14 hearing to formally recognize the SEC agreement as part of its bankruptcy proceedings.
In addition, Genesis declared in November 2023 that DCG had pledged to repay its outstanding loans amounting to $324.5 million by April 2024. This proposed settlement was designed to enable Genesis to cease a lawsuit filed against DCG in September, demanding the company to repay overdue loans of around $620 million.
Published At
2/6/2024 4:23:21 PM
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