As macroeconomic factors, global conflict, and the first "crypto winter" have resulted in the first ever distressed crypto market, this month has seen the first wave of crypto bankruptcy filings, as the following firms have filed bankruptcy petitions in the US Bankruptcy Court for the Southern District of New York (SDNY):

On July 5, 2022, cryptocurrency lender Voyager Digital Holdings, Inc. and two of its affiliates, Voyager Digital, LLC, and Voyager Digital Ltd. (collectively, Voyager), filed for bankruptcy protection under Chapter 11 in the SDNY. Voyager's bankruptcy petition lists estimated assets and liabilities between $1 billion and $10 billion, with more than 100,000 creditors. Voyager's filing is considered a traditional or "free-fall" bankruptcy case, meaning it has no restructuring agreements with its creditors in place prior to filing (see Practice Note, Bankruptcy: Overview of Chapter 11 Process: Traditional (or "Freefall")).

Voyager indicates that the case is "not a free-fall without direction" (Declaration of Stephen Ehrlich, Chief Executive Officer of the Debtor, in Support of the Chapter 11 Petitions and First Day Motions (Ehrlich Declaration)). The proposed Chapter 11 plan of reorganization attached to the Declaration contemplates a standalone restructuring that Voyager can effectuate without a sale or a strategic partner (see Exhibit C to the Ehrlich Declaration).

On July 3, 2022, crypto lender Celsius Network LLC and seven affiliates filed petitions for bankruptcy protection under Chapter 11 in the SDNY. Celsius estimated that it had about $4.3 billion in assets, $5.5 billion in liabilities, and more than 100,000 creditors. The company had about $130 million in cash on hand on the petition date (see Declaration of Alex Mashinsky, Chief Executive Officer of Celsius Network LLC, in Support of Chapter 11 Petitions and First Day Motions (Mashinsky Declaration).

Celsius was impacted by the volatility of cryptocurrency Terra Luna earlier this summer, after which Celsius froze customer withdrawals. This prompted state securities regulators in New Jersey, Texas, and Washington to launch investigations into Celsius. According to Celsius, it is not requesting authority to allow customer withdrawals, but has asked the court to allow it to continue operations such as paying employees. See Mashinsky Declaration and Declaration of Robert Campagna, Managing Director of Alvarez & Marsal LLC, in Support of Chapter 11 Petitions and First Day Motions.

To repay creditors, the company plans to sell assets and to consider investments from third-party strategic or financial investors in exchange for equity in a reorganized Celsius. It also expected that its crypto-mining enterprise (which mints new Bitcoin) would, over time, generate revenue. See Mashinsky Declaration.

On July 1, 2022, cryptocurrency hedge fund Three Arrows Capital Ltd. filed for Chapter 15 bankruptcy protection in the SDNY. On June 27, 2022, it had commenced an insolvency proceeding in the British Virgin Islands (BVI) where it was incorporated. As recently as April 2022, Three Arrows was reported to have over $3 billion of assets. It suffered a major financial reversal shortly after, however, when the Terra Luna platform collapsed and other cryptocurrencies devalued. By June 2022, Three Arrows had defaulted on loan obligations and was insolvent.

The BVI court appointed two joint liquidators from Teneo (BVI) Limited to wind up the business. They filed for Chapter 15 protection to halt an arbitration proceeding pending in New York and other creditor actions while they marshalled the estate assets for an orderly liquidation (see Declaration of Russell Crumpler in Support of Verified Petition Under Chapter 15 for Recognition of a Foreign Main Proceeding and Related Relief). The foreign representatives also sought immediate relief to protect against the unauthorized transfer of the debtors' cash and digital assets while their motion for recognition of the BVI proceeding was pending.

Three Arrows had operated as a regulated fund manager in Singapore until 2021, when it shifted its domicile to the BVI as part of a plan to relocate to Dubai. On June 30, 2022, the Monetary Authority of Singapore issued a reprimand to Three Arrows for providing false information and exceeding the assets under management permitted for a registered fund management company. At the time of the Chapter 15 filing, the company's founders refused to cooperate with the foreign representatives, and their physical locations were unknown (see Emergency Motion for Provisional Relief).

On July 12, 2022, the SDNY granted the motion for provisional relief, imposed the automatic stay, empowered representatives on a provisional basis to administer the debtor's assets in the US, and authorized them to issue subpoenas (see Order Granting Provisional Relief).

A final hearing on the petition for recognition of the foreign main proceeding is scheduled for July 28, 2022.