If Approved (and Thanks to FTX) Voyager Digital Customers Can Get Some Assets Back Early

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In an announcement yesterday (July 22, 2022), at 14:36 ET, FTX and Alameda Ventures offered:

Under the joint proposal, customers of Voyager would have the opportunity to start a new account with FTX with an opening cash balance funded by an early distribution on a portion of their bankruptcy claims. Customers would be able to withdraw their cash immediately, or use it to purchase digital assets on the FTX platform. No customer is required to participate, and participation in the joint proposal is fully voluntary. FTX hopes to close the transaction as promptly as possible, preferably in early August, subject to the requirements of the Chapter 11 process and the need for court approval.

[FTX. FTX Proposes Joint Plan to Offer Early Liquidity to Voyager Digital's Customers in Bankruptcy Proceeding. (Accessed July 23, 2022)].

"Because crypto deposits lack the regulatory protections of traditional banks and brokerages, customer assets held by Voyager could be considered part of the company's bankruptcy estate, with those customers given a low priority to recover them as unsecured creditors" [Deffenbaugh, R. FTX pitches plan to get Voyager customers some of their money. (Accessed July 23, 2022)].

For this reason, according to Sam Bankman-Fried, CEO of FTX:

Voyager's customers did not choose to be bankruptcy investors holding unsecured claims. The goal of our joint proposal is to help establish a better way to resolve an insolvent crypto business – a way that allows customers to obtain early liquidity and reclaim a portion of their assets without forcing them to speculate on bankruptcy outcomes and take one-sided risks.

[FTX, supra].

Additionally, this Proposal, once accepted by the customer, "would protect Voyager Digital clients from the depreciation of the crypto assets they currently do not have access to, as reimbursement for their digital assets will be based on their value on July 5" [Andersen, D. FTX proposes a way to give Voyager Digital clients some of their digital assets back early. (Accessed July 23, 2022).

As noted above, no customer is required to participate in this proposed program. Participation is strictly voluntary. "A letter from an FTX and Alameda Ventures legal representative explained that Voyager Digital customers who did not choose to create an FTX account would retain their rights in the bankruptcy proceedings, but would not receive early reimbursement" [Id].

Of important note, "FTX clarified in its statement that none of the companies proposing the plan would acquire Voyager's loans to Three Arrows Capital, and that Voyager debtors 'can continue to pursue Three Arrows Capital for additional recoveries' [Majcher, K. FTX, Alameda propose early liquidity plan for Voyager Digital customers. (Accessed July 23, 2022). "3AC funds would still be liable to recovery by Voyager Digital, and its customers would receive separate reimbursement independently of their deals with FTX" [Andersen, supra]. In essence, "FTX and Alameda are not interested in purchasing, and plan to leave behind in the bankruptcy estate, all 3AC-related litigation claims. The chapter 11 case is the best place to pursue recoveries relating to Voyager’s loan to 3AC" [Dietderich, A. Re: Customer Liquidity and Asset Purchase Agreement. (Accessed July 23, 2022)].

Under the Proposal, additionally: "Alameda will write off its own $75 million loan claim as part of the proposed transaction. This claim would otherwise share in supplemental recoveries. By writing off our loan, we will permit customers and other unsecured creditors to receive 100% of any incremental recoveries from the enforcement of the 3AC claim and any related litigation claims" [Id].

FTX and Alameda would like to move immediately to document and close this transaction. They will pay their own expenses and seek no financial bid protections. However, they are not in a position to hold their offer open subject to the continued loss of value that typically accompanies the insolvency of retail financial institutions.

[Id].

FTX is requesting "an initial response to the proposal by Tuesday, July 26, and would aim for documentation to be in final form for execution by Saturday, July 30" [Id]. All "with an eye to receiving expedited approval from the bankruptcy court and closing the deal by August 17" [Andersen, supra].

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