Bloomberg Law

Voyager’s Imminent Bankruptcy Crypto Sale to FTX: An Explanation

Voyager Digital’s deal to offload its crypto assets in a $1.4 billion bankruptcy sale to FTX US received initial approval from a New York court this week.

Other interested bidders can still Make higher bids for assets. But the sale will be part of a massive Chapter 11 divestiture of the cryptocurrency lender that will need court approval in December.

The deal, for now, is the flagship offering that will move more than 1 million customer accounts to FTX. The $1.4 billion price largely reflects the estimated future value of the cryptocurrency for Voyager customers.

If Voyager’s liquidation plan is court-approved, it will be secured and other priority claims will be paid in full. The bankruptcy estate could then pursue debts it says it owes on the dissolved hedge fund Three Arrows Capital and others.

What will customers get?

Voyager customers with accounts on the platform and other unsecured creditors will generally receive an estimated 72% refund of their claims.

Account holders are expected to receive a mix of cryptocurrencies, US dollars or USDC – a cryptocurrency linked to the value of the US dollar.

If the sale to FTX is finalized, the payment currency of the account holders will depend on whether or not they choose to move to FTX. Their coin refunds will depend in part on when or if they migrate their accounts and the cryptocurrencies supported by the FTX platform.

Voyager’s attorney said in court this week that the “vast majority” of the 1 million-plus account holders are expected to move to the FTX platform.

The claims of account holders will also be determined based on the fair market value of the cryptocurrency they held in their Voyager account on July 5, according to Voyager court disclosures. That’s when Voyager declared bankruptcy.

This means that if a Voyager account had 1 Ether of $1,131.60 on July 5, that claim would be equal to $1,131.60. This account holder should receive 72% of $1,131.60.

Once the customer determines the amount of his claim, he must then find out the “initial distribution”, which will be a regulated share of his claim. The initial distribution will be funded largely from proceeds from the FTX sale. Subsequent payments may come from other sources.

To receive the initial distribution in mostly cryptocurrency, customers must register and maintain an account with FTX. Customers who do not register for an FTX account, after the posting period, will eventually be paid in cash.

Under the proposed plan, the initial distribution customers receive into their FTX account is based on their claims and the 20-day historical average price of that cryptocurrency based on a future point in time that has not been publicly announced.

Voyager customers who hold a type of cryptocurrency not supported by FTX will receive USDC. The FTX platform plans to expand to support more cryptocurrencies in the coming months, according to Voyager disclosures.

What will happen to Voyager?

After the company’s bankruptcy plan is confirmed, Voyager will expire, according to its disclosures. VGX token, Voyager’s digital currency, “will have no use going forward,” according to company disclosures.

FTX has offered to buy Voyager’s VGX for $10 million, according to court records. But that offer to VGX was not part of the asset sale that was approved on Wednesday.

Voyager said it will continue to look for other higher offers for its VGX coins.

what happened after that?

Assuming the completion of the FTX transaction, FTX will only be responsible for making the initial distributions to the Referred Client.

All proceeds remaining from the sale will be returned to Voyager’s bankruptcy estate. According to Voyager disclosures, debtors will then make distributions to those who did not immigrate to FTX.

As Voyager works to complete the sale of FTX through its Chapter 11 plan, preparations will likely begin to migrate customer accounts to FTX. Voyager will also begin collecting votes from creditors to approve its plan.

FTX also plans to offer customers who transfer more than $50 deposit into their accounts if they execute at least one trade on its platform.

Voyager is expected to seek after nearly $650 million in loans to the defunct hedge fund Three Arrows Capital, which has also filed for bankruptcy protection. Any money Voyager collects from that will be used to pay the remaining claims of the account holders.

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