A US bankruptcy judge has ordered BlockFi and Three Arrows Capital (3AC) to enter mediation in order to resolve their legal battle over a significant $284 million claim made by 3AC.
The mediation, set to begin in January 2021, will be facilitated by a neutral third-party and is intended to provide an opportunity for both parties to reach an agreement. If an agreement cannot be made, the case will proceed to trial in February 2024.
The dispute relates to preferential payments made by 3AC to BlockFi prior to the declaration of bankruptcy. Preferential payments are payments made to creditors ahead of a bankruptcy filing, allowing the creditor to collect more than they would have received in a bankruptcy proceeding.
Earlier this year, 3AC’s liquidator, Teneo, had intentions to reclaim $1.2 billion from Digital Currency Group (DCG) and BlockFi, with the claim against BlockFi standing at $284 million. In response, BlockFi’s bankruptcy estate alleges that 3AC engaged in fraudulent activities.
Judge Kaplan, who presided over the proceedings, acknowledged the gravity of the matter and expressed concern that the dispute was pushing the calendar out further than he’d like for creditors. As such, a two-day hearing was scheduled for February 5, 2024, to determine the precise amount of funds to be returned. Judge Kaplan postponed 3AC’s motion to lift the stay until the February hearing.
FTX and BlockFi both filed for Chapter 11 bankruptcy in late November. FTX is facing claims totaling over $483 million from BlockFi, who argue they are being unfairly targeted. FTX’s primary objective is to recover loan repayments and collateral pledged to BlockFi before the bankruptcy filing.
BlockFi has accused 3AC of using fraudulent means to borrow money. Some of the funds were repaid when 3AC failed to respond to a margin call, and BlockFi foreclosed on posted collateral. BlockFi asserts that 3AC owes them for this deficiency and that no outstanding debts are owed to them. 3AC, however, insists that BlockFi owes them over $220 million and any attempts to diminish these claims may violate bankruptcy protection regulations. As such, 3AC has invoked a bankruptcy pause under Chapter 15 protection to safeguard its assets in the US.
