Bittrex files plan of liquidation, seeks 700 bitcoin DIP financing

By Sarah Lizee

Olympia, Wash., May 9 – Desolation Holdings LLC, which does business as Bittrex, filed a Chapter 11 plan of liquidation and related disclosure statement on Monday with the U.S. Bankruptcy Court for the District of Delaware.

The debtors started the Chapter 11 process to allow customer withdrawals consistent with Bittrex’s terms of service and applicable law, within an orderly wind down of Bittrex’s U.S. and Malta operations.

The group is hoping to maximize value for the debtors’ creditors and stakeholders, maintain intact Bittrex’s non-U.S. business operations (other than the Malta business) for the benefit of non-U.S. customers, and fairly separate the non-U.S. operations.

The plan provides that the debtors’ customers entitled to distributions will receive a 100% like-kind cryptocurrency distribution. This means that with respect to customers, they will be entitled to access the Bittrex platform and withdraw cryptocurrencies consistent with the plan and with their allowed claims.

The debtors do not intend to monetize cryptocurrencies reserved for like-kind distributions to holders of allowed customer claims, and any change in the value of those assets following the petition date would be borne by the debtors’ customers.

Under the plan, holders of other priority claims are unimpaired.

Holders of general unsecured claims will receive their pro rata share of class A interests, which entitles them to payment priority from a liquidating trust.

Holders of subordinated claims will receive their pro rata share of class B interests, and holders of interests will receive their pro rata share of class C interests.

Customer claims, general unsecured claims, subordinated claims and interests are all impaired under the plan, and holders are entitled to vote.

Bitcoin DIP financing

Also on Monday, Bittrex filed a motion seeking approval of debtor-in-possession financing consisting of up to 700 bitcoin.

Parent company Aquila Holdings Inc. is the proposed lender.

The proceeds will be used for the payment of wind-down expenses, working capital expenses and other general corporate purposes.

In exchange, the DIP lender will be given super-priority administrative expense claims under the plan.

“Although novel to those outside of the cryptocurrency industry, borrowing funds in BTC is not uncommon for participants in the cryptocurrency industry, as BTC is that industry's currency of choice,” the company said in the DIP motion.

“Following the closure of the debtors’ U.S. dollar fiat banking services provider, Silvergate Bank, access to fiat currency for a cryptocurrency company in wind-down mode is unlikely.”

Bittrex said that while the debtors discussed with the DIP lender whether it would make the loan in dollars, the DIP lender was unwilling to do so due to potential negative tax consequences to the lender, which would have greatly increased the expense of lending and for which the debtors would have been charged.

In order to prevent negative tax consequences, the DIP lender also requires the principal amount of the DIP loan to be repaid in bitcoin.

Bittrex said the debtors negotiated protection against the risk of currency rate fluctuations between the time the loan is borrowed and repaid.

It is expected that the DIP loan will be made in two draws – 250 bitcoin upon approval of the interim order and an additional 450 bitcoin upon approval of the final order. Following each of these draws, the debtors intend to convert the bitcoin into dollars in order to minimize any risks of currency rate fluctuation.

After the conversion, the debtors will use those proceeds to pay their administrative expenses in the Chapter 11 cases, including professional fees and employee costs, among other things.

Bittrex is a cryptocurrency trading platform with headquarters in Seattle. The company filed bankruptcy on May 8 under Chapter 11 case number 23-10597.

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