Crypto lender Genesis Global received court approval to return nearly $3 billion to customers, while a report highlights a significant increase in creditor haircuts in bankruptcy cases to 73% in FY24.

Judge Approves Genesis' $3 Billion Payout, Overturns DCG's Valuation Objection Amid Rising Crypto Prices

In a recent report by The Economic Times, US Bankruptcy Judge Sean Lane authorized Genesis' Chapter 11 liquidation plan. He overturned DCG's opposition, which stated that Genesis should pay its customers and creditors no more than the value of its crypto assets in January 2023, when it filed for bankruptcy.

Cryptocurrency prices have grown dramatically after Genesis declared bankruptcy, and DCG and Genesis differed on who should benefit from the price increase. Bitcoin, for example, was valued at $21,084 in January 2023, compared to the current price of $67,000.

Lane dismissed DCG's challenge, stating that even if customer claims were capped at lower prices, Genesis would still have to pay many other creditors, including federal and state financial authorities who had asserted $32 billion in claims, before it could pay its equity owner DCG.

"There are nowhere near enough assets to provide any recovery to DCG in these cases," Lane wrote.

Genesis repays consumers in Bitcoin wherever possible, but it does not have enough to repay everybody owed.

"We don't buy into the idea that claims are capped at the petition date value," O'Neal said.

Genesis attorney Sean O'Neal said Friday that the company disputed DCG's claim that clients might be compensated "in full" due to reduced cryptocurrency prices in January 2023.

Genesis estimated in February that it may pay its customers up to 77% of the value of their claims, subject to future price swings.

On May 10, DCG was unable to provide an immediate comment.

Creditors Face 73% Haircuts in FY24 as Bankruptcy Resolutions Slow; Average Recovery Falls to 4%

According to a report released on May 17, the haircuts incurred by creditors in bankruptcy proceedings jumped to 73% in FY24 from 64% in FY23. The National Company Law Tribunals (NCLTs) authorized 269 resolution plans in FY24, up from 189 the previous year, according to a study by local rating agency Icra.

According to the FDA, new admissions fell to 987 in FY24 from 1,263 in FY23. The agency attributed the drop to a larger base in the previous fiscal year due to COVID-19 pandemic-related stress.

It should be highlighted that lenders' haircuts, or sacrifices, in proportion to total dues in corporate insolvency resolutions have previously raised worries about the value at which a new bidder will acquire the assets.

Its group head for structured finance ratings, Abhishek Dafria, said there had been a "worsening" of the haircuts imposed by creditors under the Insolvency and Bankruptcy Code (IBC) process to a sharp 73%, up from 64% in FY23.

He stated that the average time it takes to resolve a case has climbed to 843 days in FY24, up from 831 days in FY23, and that this is one reason why haircuts have increased. It should be mentioned that bankruptcy law expected a settlement to take 330 days.

The agency expects average recoveries for lenders to remain in the 30-35 percent range in FY25.

Dafria stated that the increase in CIRPs (corporate insolvency resolution processes) to 269 is encouraging, adding that an entity can continue operating as usual.

The decrease in new additions has reduced ongoing CIRPs at NCLTs to 1,920 as of March 31, 2024, from 1,953 a year before.

In addition to the CIRPs, the NCLT issued liquidation orders to 446 corporate debtors in FY24 versus 400 in FY23. Since the commencement of IBC, the number of liquidated CIRPs has remained notably high, accounting for 45 percent of the 5,467 closed CIRPs.

According to the agency, only 17% of cases resulted in a resolution plan, with the remaining cases being withdrawn following NCLT admission. Liquidation for 960 corporate debtors was completed by March 2024, with creditors receiving only 4% of their admitted claims.

"More than 75% of the CIRPs that entered into liquidation had been defunct entities or were already under the Board of Industrial and Financial Reconstruction (BIFR) at the time of admission under the IBC," he said.

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