Questions and Answers: Restructuring expert talks about Voyager bankruptcy

Questions and Answers: Restructuring expert talks about Voyager bankruptcy

Voyager filed for Chapter 11 bankruptcy on Wednesday, and it's uncertain how courts will deal with bankrupt crypto lenders like Voyager — and possibly Celsius and Babel Finance.

Blockworks spoke with Ryan Dahl, Business Restructuring Partner at Ropes & Gray, about what investors can expect as Voyager enters bankruptcy proceedings.

Blockworks: Voyager filed for Chapter 11 bankruptcy on Wednesday. What's next?

Dahl:In the insolvency proceedings, the first step must be approved by the insolvency court. To do this, Voyager must provide the court, in the form of a disclosure statement, with a range of information about the company and the reason it is filing for bankruptcy. As of this afternoon, the company has not filed a disclosure statement, and it is not clear when it will do so. There is typically a period of one or two months between the company filing the disclosure statement and the court's decision on the statement. However, if creditors have serious valuation issues or questions about standards, litigation can last for months and delay confirmation.

Once the court approves the statement, creditors can file ballots indicating whether they approve or reject the plan of reorganization. It is likely, but not certain, that a number of creditors will become involved in the bankruptcy proceedings by voicing their views on the filing - including Voyager's claim to be FDIC insured, what ended up happening before Voyager filed for bankruptcy, and how much Voyager is offering its creditors.

Blockworks: Why might creditors object to Voyager's proposed repayment plan?

Dahl:The value that Voyager proposes to give to all these people depends on how you value these cryptocurrencies, because they promise to return the crypto given by account holders. It's complicated when valuing an asset that has the extreme volatility of crypto, and there is no established body of law for accepted valuation practice for crypto. Are you looking at crypto spot prices or are you doing what is being done in the energy sector, for example - where bankruptcy courts conduct complicated processes to examine future oil prices? We also haven't yet seen Voyager's valuation, which is usually included in the disclosure statement.

Blockworks: One factor that will affect Voyager's ability to repay is how much of its $650 million loan to Three Arrows Capital can be recovered. What can creditors expect from Voyager’s loan recovery?

Dahl:The case was just filed, so we won't really know until the dust settles. Anyone who claims to know for sure how much Voyager can recover is speculating. Recovery rates for these types of interventions can vary widely. In the case of Bernie Madoff, for example, the conventional wisdom was that there would never be a real recovery. In fact, the Madoff Trust was quite effective at recovering much of its creditors' money by pursuing a very successful litigation strategy, although its success was only in recovering assets in a Ponzi scheme, so the same legal theory does not apply here.

Ryan Dahl is a partner in Ropes & Gray's Business Restructuring Group with experience representing public and private debtors, distressed investors and financial sponsors in special situations, out-of-court restructurings and distressed acquisitions, and in-court Chapter 11 litigation through prepackaged, pre-arranged and traditional restructurings.

Comments have been edited for clarity and brevity.

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The post Q&A: Restructuring Expert Talks Voyager Bankruptcy is not financial advice.