Trading of Voyager Digital (OTCMKTS:VYGVF) stock is currently halted after the company announced it will pursue Chapter 11 bankruptcy. The cryptocurrency brokerage also disclosed it has roughly $1.3 billion in crypto assets on its platform. In addition, it has more than $350 million of cash held in its For Benefit of Customers (FBO) account at Metropolitan Bank.
Last week, Voyager announced the suspension of all trading, withdrawals, deposits and loyalty rewards. The company also suspended its debit card, and customers were advised to pause all direct deposits and automatic payments. Voyager attributed the suspension due to losses sustained from the downfall of crypto hedge fund Three Arrows Capital (3AC). 3AC currently owes the crypto brokerage more than $650 million due to a loan default.
So, the big question still remains. What will happen to customer’s assets on the platform?
What Does Chapter 11 Bankruptcy Mean for Voyager Digital Crypto Customers?
Chapter 11 bankruptcy allows the debtor, or Voyager, to remain in business while pursuing a debt reorganization plan. The plan must be in the best interest of the debtor’s creditors, such as Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and FTX-backed Alameda Research. Still, Voyager has already laid out a plan for what it intends to do with its customers’ assets.
Users who hold U.S. dollars (USD) on the platform will be able to recover it after a “reconciliation and fraud prevention process” is completed with Metropolitan Bank. However, users who own crypto on the platform will face a longer process. In a press release outlining the plan, Voyager explains:
“…customers with crypto in their account(s) will receive in exchange a combination of the crypto in their account(s), proceeds from the 3AC recovery, common shares in the newly reorganized Company, and Voyager tokens. The plan contemplates an opportunity for customers to elect the proportion of common equity and crypto they will receive, subject to certain maximum thresholds.”
The company notes the crypto recovery plan must be approved by the court before it can be enacted. Furthermore, it’s clear Voyager does not have enough assets on hand to return crypto investments to customers. This is why it is choosing to provide them with equity in the newly reorganized company.
Voyager has stated it is continuing to evaluating all strategic alternatives to maximize stakeholder value.
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On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.