Voyager Digital Holdings, Inc

Shortly before midnight on October 5th, Voyager Digital Holdings, Inc. filed a revised version of its proposed plan of reorganization [LINK] and accompanying disclosure statement [LINK] with the bankruptcy court in the Southern District of New York.  Unlike previous versions of the plan and disclosure statement, the new versions reflect the terms of Voyager’s proposed deal with FTX US.  Below we’ve summarized some of the most important provisions for Voyager’s account holders in understanding the value of their claims.

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1. Voyager Estimates the Value of Account Holder and General Unsecured Claims at 72% of Face Value

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In the disclosure statement, Voyager for the first time provides an estimate of the recovery rate for account holders and other general unsecured creditors.  Voyager estimates in the disclosure statement that account holders/unsecured creditors will receive approximately 72% of their value back.  Of that amount, most of the recovery (70% of the 72%) will be as a result of the return of their crypto assets (some of which may be paid in cash if they held crypto assets that are not supported by FTX US).  

The remaining 2% is estimated to come in the form of cash from a variety of potential sources including: (i) Voyager balance sheet cash, (ii) FTX US upfront cash consideration, (iii) FTX US earnout, (iv) other miscellaneous recoveries, including proceeds from the sale of investments and any Three Arrows Capital recovery.

Note, however, that this 72% is an estimate, not a guarantee, and is subject to a number of caveats, discussed below.

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2.  Creditor Recoveries, However, Remain Uncertain.

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While Voyager provides the estimate of what creditors may receive back in relation to the face amount of their claims, those estimates are subject to a number of caveats, chief among them that they are based on crypto prices for a 20-day period in September (which is not the time period that will be used to determine the actual recoveries): 

“Recoveries are for illustrative purposes and may materially differ from the amount portrayed in the chart. Cryptocurrency dollarized as of the petition date for illustrative purposes. Illustrative recovery is shown based on the estimated total fair market value of Voyager’s cryptocurrency assets based on 20-day average coin prices as of September 29th, 2022. Actual cryptocurrency recovery will be determined by cryptocurrency prices during the fair market value reference period prior to the Effective Date and may vary materially from illustrative recoveries presented herein depending on market conditions.”

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3. The Deal With FTX May Impact the Value of VGX.

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According to the disclosure statement: “Following the sale to FTX US, Voyager will wind down and therefore VGX will have no utility going forward. As a result, VGX may decline in value and may have no value post-consummation of the Plan. FTX US will not be assuming Voyager’s obligations related to VGX, but has offered to purchase all VGX in the Debtors’ Estates for a purchase price of $10 million.”

According to court filings, Voyager held almost 169 million VGX tokens as of the Petition Date.  As of October 6, 2022, Coindesk reported a market price of approximately $0.52 per VGX token and a total supply of almost 293 million tokens. 

However, it is possible that VGX treatment may improve according to Voyager: “For purposes of estimated recoveries, the Debtors have assumed a $10 million purchase price for VGX. The Debtors continue to engage with third parties regarding a sale of VGX that may provide additional recovery to Holders of Claims.”

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4. Account Holders Will Only Get In Kind Distributions if They Transfer Their Accounts to FTX.

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The proposed plan assumes that all customers will transfer their Voyager accounts to FTX, which will be governed by the terms of a yet-to-be-filed Customer Migration Protocol.  While it hasn’t been filed, the disclosure statement says that it will generally provide that FTX will make initial distributions to transferred customers into their new FTX accounts:

A. in cryptocurrency if such customer has become a transferred customer prior to the Closing Date and FTX supports the cryptocurrency maintained by such customer in his/her account, or

If a customer is not transferred to FTX, the customer will not be eligible for a $50 account credit and also will not receive the transferred cryptocurrency value in kind.  Instead, that customer will receive a cash distribution from the Debtor’s estates as and when such distributions are made pursuant to the Bankruptcy Code.

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5. The Plan is Not Yet Approved.

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Voyager’s plan remains just a proposal and is subject to change.  Currently, Voyager says that it intends to ask the bankruptcy court to require creditors to vote on the plan by November 25th and to ask the court to confirm (approve) the plan at a hearing on December 6th.  If the plan is confirmed, Voyager would then have to meet certain requirements for the plan to become effective (final). 

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6. Account Holders and General Unsecured Creditors Will Have a Vote on the Plan. [PAGE 18]

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If you are an account holder or an unsecured creditor of Voyager, expect to receive documents in the mail in coming weeks regarding the plan and your right to vote on the plan.  Because your claim is “impaired” (meaning you aren’t receiving 100% of your claim’s value under the plan), you’ll be entitled to submit a vote in favor of or against the plan. 

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7. Voyager Says Account Holders Are Better Off With the FTX Deal than Liquidation.

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According to Voyager, the proposed deal with FTX is better for account holders and general unsecured creditors than a liquidation.  Voyager estimates that in a liquidation, account holders would receive 51-60% of the value of their claims, and general unsecured creditors would receive 57-64% of their claims.  Therefore, Voyager says both are better off receiving the estimated 72% recoveries from the FTX transaction.

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8. Regulatory Approvals May Be Required for the FTX Transaction to Close.

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According to the disclosure statement, Voyager currently maintains state money transmission licenses or their equivalents in 17 states and has license applications pending in 18 states.  It also says that FTX US “maintains money transmission licenses in most, but not all, of the states in which it operates.”

Voyager’s money transmission licenses cannot, however, be transferred to FTX: “it is important to note that Money Transmission Licenses are not assets that can be purchased or transferred; they are specific to the entity to which they are issued, and thus an acquisition of a licensed entity must be conducted through a stock purchase or merger in which the licensed entity is the surviving entity for the licenses to remain in effect.”

According to Voyager: “The state banking departments may have broad discretion as to the approvals required in connection with the Sale Transaction, thus it is not possible to predict with certainty the scope of such approvals, whether they will ultimately be granted, and the expected timeframes of the state banking departments’ determinations. There are unresolved questions of law with respect to the intersection of state money transmission statutes and the Bankruptcy Code and the answers to those questions may impact the ability of the state banking departments to require certain approvals with respect to consummation of the Sale Transaction and confirmation of the Plan. . . . State banking departments may seek to limit or condition the

Purchaser’s acquisition of the Voyager assets to the extent that regulatory concerns are identified.”

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9. The Plan Provides Release and Exculpation Provisions in Favor of Various Parties

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As is common in bankruptcy cases, numerous parties receive releases of potential claims and causes of action under the plan.  The details of these provisions are complex and are beyond the scope of this article.  It is worth noting, however, that the releases may be limited by the results of on-going investigations:

“On the Petition Date, the board of directors of Voyager Digital, LLC voted to appoint two independent directors to the board of Voyager Digital, LLC and to establish a special committee (“Special Committee”). The Special Committee is comprised of the newly appointed independent directors and was established to investigate certain historical transactions, including the facts and circumstances related to the Debtors’ loan to 3AC (the “Investigation”). On August 4, 2022, the Bankruptcy Court entered an order approving the appointment of Quinn Emmanuel Urquhart & Sullivan, LLP as legal counsel to the Special Committee with the mandate to conduct the Investigation. As of the date hereof, the Investigation remains ongoing. To the extent the Investigation concludes there are viable Claims and/or Causes of Action against certain parties, such parties will be expressly carved out of the Released Parties and the Exculpated Parties, and such Claims and/or Causes of Action will be retained by the Wind-Down Entity.”