Cryptocurrency hedge fund Three Arrows Capital Ltd. filed for Chapter 15 bankruptcy in a New York court less than a week after being ordered to liquidate its assets in the British Virgin Islands.
Chapter 15 bankruptcy is a form of bankruptcy that allows cooperation between US courts and foreign courts when foreign bankruptcy proceedings affect US financial interests. In this case, Three Arrows Capital has investors in the United States but operates from the Virgin Islands.
In the July 1 court filing, Three Arrows said its business collapsed “as a result of extreme fluctuations in the cryptocurrency markets” and that its filing was in direct response to the BVI’s decision.
“By filing the motion to commence this Chapter 15 case (the “Chapter 15 case”), the foreign representatives seek to maintain the active efforts of individual creditors to seize the assets and preserve the status quo and give the foreign representatives a opportunity to stabilize the debtor’s estate, preserve the debtor’s assets, and conduct a full investigation of the debtor, claims against his estate and assets, including causes of action,” the filing reads.
Three Arrows further argues that without Chapter 15 bankruptcy being granted, “creditors may pursue a value-destroying race to the courthouse to exercise their rights in a way that would better their own position vis-à-vis the court.” vis-à-vis other creditors in a similar situation”.
News that Three Arrows Capital was in serious trouble amid the cryptocurrency’s mid-winter 2022 emerged in mid-June with a report suggesting it was facing insolvency after suffering nearly $400 million. dollars in liquidations from lenders. The company’s investments, which include Ethereum, Solana, and Luna, fell along with the broader market, putting pressure on the company.
Although the vast cryptocurrency market was one of the drivers of the company’s demise, Three Arrows was also heavily exposed to the failure of the algorithmic stablecoin Terra. Three Arrows co-led a $1 billion raise to protect the stablecoin, but the invested funds ran out when Terra crashed.
On June 29, the British Virgin Islands ordered the liquidation of Three Arrows after creditors sued the company for defaulting on its debts. Voyager Digital Ltd. Voyager said on June 27 that it issued a notice of default to Three Arrows for non-payment of required payments on a 15,250 bitcoin, $350 million USDC loan.
Three Arrow’s default in payment drove Voyager itself to the brink of insolvency. The company announced on July 1 that it was “temporarily suspending transactions, deposits, withdrawals and loyalty rewards.
“It was an extremely difficult decision, but we believe it is the right one given current market conditions,” said Stephen Ehrlich, chief executive of Voyager. “This decision gives us more time to continue exploring strategic alternatives with various interested parties while preserving the value of the Voyager platform we have built together. We will provide additional information at the appropriate time.