Voyager Digital Ltd. won court approval to sell itself to Binance.US, the US arm of the world’s biggest crypto exchange, after four days of contentious bankruptcy hearings in which state and federal regulators joined a handful of investors in opposing the approximately $1 billion deal.
(Bloomberg) — Voyager Digital Ltd. won court approval to sell itself to Binance.US, the US arm of the world’s biggest crypto exchange, after four days of contentious bankruptcy hearings in which state and federal regulators joined a handful of investors in opposing the approximately $1 billion deal.
US Bankruptcy Judge Michael Wiles said he would give Voyager permission to try to close the Binance.US sale and a related payout plan which may give customers about 73% of what they are owed, depending on where prices for various cryptocoins land in the coming weeks. Wiles rejected claims by lawyers for the US Securities and Exchange Commission that parts of the deal and the plan violate federal law.
Wiles criticized the SEC lawyers for attacking the sale and the plan without actually saying that the Commission itself had concluded either was illegal.
“I cannot put the entire case into indeterminate deep freeze while regulators figure out whether they believe there are problems with the transaction and plan,” Wiles said. Wiles said he will sign a court order approving the sale and the plan once final wording changes are made.
Federal officials are considering appealing Wiles’ decision, Peter M. Aronoff, a lawyer with the US Department of Justice said, said in the hearing.
The SEC and other federal lawyers argued that the payout plan could undermine future efforts to police cryptocurrency markets. Lawyers for the SEC and the US Justice Department opposed a legal protection typically given to executives and restructuring advisers of a bankrupt company. The protection blocks lawsuits against those professionals for implementing a court-approved bankruptcy plan.
Wiles expressed frustration with the SEC and Justice Department position, saying it would be impossible to resolve any bankruptcy case if the people involved could be sued for following a plan that had been approved by a federal judge.
The dispute reflects a growing conflict between efforts to rehabilitate troubled crypto companies and an increased regulatory push by the SEC.
Unusual Hearing
Voyager will now take several weeks to decide whether to complete the sale or liquidate on its own and turn over the proceeds to customers. Before going forward with the sale, Voyager will question Binance.US about various federal investigations, Voyager’s lead investment banker, Brian Tichenor, with Moelis & Co., said during a court hearing Friday.
The Binance.US sale would give customers about $100 million more than if Voyager liquidated on its own, Tichenor said.
The unusual court fight included customers who dialed into the proceeding and were allowed to ask Wiles and Voyager’s restructuring experts questions about the sale and the payout plan. The customers who participated in the hearing questioned the Binance sale and objected to some of the details of the payout, including whether there would be any value left in the Voyager cryptocoin the company will use to help fund creditor recoveries.
How much customers will get back will depend, in part, on a bankruptcy court fight with the biggest crypto firm in bankruptcy, FTX Group, which is demanding the return of hundreds of millions of dollars worth of digital assets it claims were lent to Voyager. Voyager has agreed to reserve $445 million in case it loses that dispute.
Before Voyager went bankrupt in July, FTX had borrowed hundreds of millions of dollars worth of crypto, but also agreed to let Voyager borrow as much as $500 million of cash and digital assets, according to court documents.
In January, Voyager estimated in a court filing that customers may get back around half of what they are owed. At the start of the court hearing on March 2, Voyager attorney Christine A. Okike told Wiles the recovery estimate had climbed to about 73% based on recent prices of cryptocoins.
The bankruptcy is Voyager Digital Holdings Inc., 22-10943, U.S. Bankruptcy Court for the Southern District of New York (Manhattan).
(Updates with comments from judge beginning in third paragraph.)
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