Parent company DCG claims Genesis’ bankruptcy plan overcompensates creditors and violates the bankruptcy code. In a recent court filing on February 5, Genesis’ bankruptcy plan faces pushback. Digital Currency Group (DCG), the parent company of the now-defunct Genesis crypto lender, raised objections against the approval of Genesis’ bankruptcy plan. DCG alleges that the plan, created through a “clandestine approach,” goes beyond legal obligations and breaches the bankruptcy code.
DCG Accuses Genesis of Overcompensation and Lack of Good Faith
DCG argues that the main reason why Genesis’ bankruptcy plan faces pushback is because Genesis’ plan unfairly disadvantages them, eroding fundamental economic and corporate governance privileges. The objection contends that the proposed plan overcompensates unsecured creditors by hundreds of millions, disproportionately favouring a small group of creditors in violation of the Bankruptcy Code.
The objection emphasizes DCG’s willingness to support a plan that pays creditors their full claims, insisting that Genesis should compensate customers and creditors based on the assessed value of crypto assets at the time of the bankruptcy declaration in January 2023.
DCG Calls for Dismissal of Proposed Plan
DCG urges the court to dismiss the proposed plan, citing its complexity and convoluted distribution principles. However, DCG expresses willingness to support a plan that ensures a 100% recovery for creditors, including par plus post-petition interest, provided its concerns are addressed.
Ongoing Dispute Between Genesis and DCG
This is not the first clash between Genesis and DCG. In the previous year, Genesis initiated legal action against DCG to recover a substantial loan exceeding $700 million, encompassing both fiat and cryptocurrency repayments scheduled for May 2023. Despite DCG’s public commitment to settling the debt, a faction of lender creditors insists on the company’s continued obligation to Genesis.
Genesis’ Bankruptcy Amidst 2022 Bear Market Turmoil
Genesis and other cryptocurrency lending firms like Celsius faced challenges during the 2022 bear market turmoil. The company filed for bankruptcy in January 2023 after the suspension of withdrawals triggered by the FTX collapse in November 2022.
Violation of The Bankruptcy Code
DCG points out that Genesis’ proposed plan fails to comply with Section 502(b) of the Bankruptcy Code, requiring claims valuation in US dollars as of the petition date. Allegedly, allowing claims to inflate based on asset appreciation post-petition could lead to an unjust diversion of assets to favoured creditors.
The objection raises concerns about a small, powerful group of creditors influencing the plan, inserting favourable setoff provisions that minimize their obligations while maximizing recoveries, and violating fiduciary duties.
Genesis’ Bankruptcy Journey and Recent Developments
Genesis filed for bankruptcy in January 2023 following a liquidity crisis that led to suspended withdrawals in November 2022. In 2024, Genesis settled with the United States Securities and Exchange Commission (SEC) for $21 million in a lawsuit related to its Gemini Earn lending program.
More recently, Genesis sought court authorisation to sell shares in Grayscale Bitcoin Trust (GBTC), Grayscale Ethereum Trust (ETHE), and Grayscale Ethereum Classic Trust (ETCG) worth approximately $1.6 billion. The objective is to maximize funds available for distribution to creditors.
Liquidation of Assets, Including GBTC
Continuing its bankruptcy process, Genesis recently moved to liquidate $1.4 billion of its assets held in Grayscale Bitcoin Trust (GBTC), which recently converted to a spot exchange-traded fund (ETF).
A Complex Legal Battle Unfolds
As Genesis’ bankruptcy plan faces pushback, DCG and Genesis engage in a legal dispute over the proposed bankruptcy plan. The legal battle intensifies between DCG and Genesis and the cryptocurrency community watches closely. The clash highlights the complexities and challenges companies face in the volatile crypto industry.
Also Read: MicroStrategy’s Power Move: Bought $1.25B of Bitcoin in Q4.
