Crypto lender Cred will still be in control of its business as it heads into bankruptcy.
In an omnibus preliminary hearing on Friday, Judge John Dorsey of the Delaware Bankruptcy Court rejected a motion to appoint a Chapter 11 trustee to oversee Cred’s restructuring.
The judge made the ruling with the caveat that if Cred equity holders Dan Schatt and Lu Hua attempt to fire Cred board member Grant Lyon, who’s in charge of Cred’s restructuring, then the court will step in and appoint a trustee to oversee the bankruptcy. Dorsey also appointed an examiner, who will provide an independent investigation into Cred’s business.
“There’s no evidence that anybody has done anything wrong since the [bankruptcy was filed],” said Paul Hastings LLP partner James Grogan, the attorney representing Cred in the case. “We’re not here to sprinkle holy water on what the debtors did pre-petition. Nobody thinks that this company was well-run or was a model for business schools.”
Cred froze withdrawals and deposits in October and declared bankruptcy in November. According to several former Cred employees, the company’s Chapter 11 bankruptcy filing doesn’t tell the whole story.
The motion to appoint a Chapter 11 trustee was filed by the U.S. Department of Justice (DOJ) unit that oversees the administration of bankruptcy cases. In denying the DOJ’s request, Dorsey offered his thoughts on Cred’s mismanagement.
“There’s no doubt in my mind that there were shenanigans going on [before the bankruptcy case was filed],” the judge said before deciding not to enlist a Chapter 11 trustee.
Dorsey decided to delay a motion to allow one creditor to retrieve its crypto before the rest. The motion was filed by UpgradeYa, an investment firm that participated in Cred’s borrowing program. The company wants the 478.17 BTC (now worth around $11 million) it used to secure a $2 million loan from Cred (in fiat) before other creditors get their assets back.
The company believes it’s entitled to the bitcoin now because it’s UpgradeYa’s property and not the estate’s. The judge may have to rule on whether the common bitcoin meme “not your keys, not your crypto” applies.