The Dispute Over Genesis’s Bankruptcy Plan: A Closer Look at DCG’s Opposition

The Dispute Over Genesis’s Bankruptcy Plan: A Closer Look at DCG’s Opposition

Digital Currency Group (DCG), a subsidiary of Genesis, has recently opposed the bankruptcy plans put forth by Genesis, arguing that it not only violates the law but also favors a small group of creditors. DCG’s objections, outlined in a court filing on February 5, strongly express concerns about the Revised Plan submitted by Genesis. According to DCG, this plan prolongs the already lengthy bankruptcy process and results in Genesis overpaying its creditors by hundreds of millions more than what was initially proposed.

One of the key arguments made by DCG is that the Revised Plan violates the Bankruptcy Code. DCG suggests that while it would support a plan that pays 100 cents on the dollar to all creditors, the current plan favors certain creditors over others. The proposed plan intends to pay unsecured creditors millions of dollars more, leading DCG to question the fairness of the distribution and argue that it benefits a small controlling group at the expense of other stakeholders.

DCG’s position is further bolstered by its claim that the Revised Plan contradicts two fundamental pillars of the Bankruptcy Code. Firstly, it violates the principle that senior classes should not receive more than the full value of their claims. This unequal distribution of funds disadvantages some creditors and equity holders, creating an imbalanced outcome. Secondly, the plan seems to disregard the absolute priority rule, which stipulates that the distribution of assets should adhere to a specific order of priority. DCG argues that certain creditors will receive a premium while equity holders are left with nothing, which it deems as highly unfair and inequitable.

DCG also highlights that the proposed plan undermines its rights as the parent company and strips it of economic and corporate governance rights. This breach of fiduciary duties is seen as a significant concern for DCG, as it holds the ultimate equity stake in Genesis. The firm argues that the Amended Plan was developed through a “clandestine process,” where discussions took place between the UCC and Ad Hoc Group, excluding DCG in violation of rules aimed at protecting equity interests.

Genesis initially filed for bankruptcy in 2023, citing the severe market conditions experienced the previous year. This period also witnessed the collapse of Terra Network and FTX, resulting in significant losses for the cryptocurrency market. In an effort to recuperate, Genesis sought court approval on February 4 to sell assets amounting to $1.6 billion, including shares of Grayscale Bitcoin Trust (GBTC) and Grayscale Ethereum Trust.

DCG’s opposition to Genesis’s bankruptcy plans sheds light on various legal and fairness concerns. The allegations of violating the Bankruptcy Code’s principles, favoring a select group of creditors, and breaching fiduciary duties to the parent company are crucial factors contributing to DCG’s objections. The outcome of this dispute will have significant implications for the distribution of assets and the restoration of Genesis’s financial standing.

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