In a recent development, Digital Currency Group (DCG), the parent company of bankrupt crypto lender Genesis Capital, has objected to Genesis’ bankruptcy plan, arguing that it violates the Bankruptcy Code.
DCG’s objection centers around Genesis’ proposal to pay customers more than they are legally entitled to, a move that DCG believes “unfairly” favors a select group of creditors and strips DCG of valuable economic and corporate governance rights.
Digital Currency Group Challenges Genesis Bankruptcy Plan
DCG’s objection, filed on February 5, argues that while it would support a plan that pays creditors the full value of their claims, the current proposal goes beyond that, resulting in unsecured creditors receiving “hundreds of millions of dollars” more than their petition date claims.
According to DCG, this is a clear violation of the Bankruptcy Code’s requirements for confirming a cramdown plan, which states that senior classes should not receive more than the full value of their claims, and distributions must comply with the absolute priority rule.
The objection further points out that the proposed plan allows certain unsecured claims to grow exponentially as the value of Genesis’ assets increases, particularly in the case of cryptocurrencies.
DCG argues that this distribution scheme, referred to as the Distribution Principles, allows senior creditors to be the sole beneficiaries of any appreciation in the value of the assets. DCG maintains that such a distribution construct is unlawful and exceeds what the Bankruptcy Code permits.
Preferential Treatment Of Unsecured Creditors?
In the motion filed on Monday, DCG further alleges that Genesis’ bankruptcy plan was developed through a “clandestine process” that excluded Digital Currency Group.
The objection claims that the UCC (Unsecured Creditors Committee) and Ad Hoc Group, in collaboration with Genesis, devised a plan that “disenfranchises” equity interests and favors general unsecured creditors. DCG contends that this process violates the Debtors’ fiduciary duties and demonstrates a “lack of good faith.”
DCG’s objection also highlights other advantages granted to certain creditors, including post-petition interest rates not recognized by the court and restrictions on DCG’s rights as the equity holder.
The objection asserts that these provisions further diminish Digital Currency Group’s interests and contradict the Bankruptcy Code.
DCG maintains that Genesis’ proposed bankruptcy plan fails to comply with the Bankruptcy Code and was not proposed in good faith.
DCG argues that equity holders and other stakeholders are disadvantaged while a small group of powerful creditors benefit disproportionately. As a result, DCG urges the court to reject the plan and demands a fair and equitable resolution that adheres to the requirements of the Bankruptcy Code.
Featured image from Shutterstock, chart from TradingView.com
