Crypto lovers were expecting the Terraform labs bankruptcy news, and it came to daylight sooner or later. Singapore’s Terraform Labs, the brains behind the digital currencies TerraUSD (UST) and Luna, recently took a big step by filing for Chapter 11 bankruptcy in Delaware. This move came after their cryptocurrencies took a massive hit in 2022.
Terraform Labs, confirming their bankruptcy filing, said this is a strategic move. It’s like they’re pausing to sort things out, especially with legal issues in Singapore and the U.S. Securities and Exchange Commission. They’re also committed to taking care of their employees and vendors during this time, which is a good sign. Here is everything you need to know about Terraform Labs bankruptcy!
Details about the Terraform Labs bankruptcy
In a document they shared today about Terraform Labs bankruptcy, the numbers are big. Terraform Labs’ assets and liabilities are between $100 million and $500 million. That’s a lot of money! And they’ve got between 100 and 199 creditors to deal with. But they’re not just sitting back. They’ve got plans to grow their web3 business. They’ve snapped up Pulsar Finance recently and launched a new crypto wallet called Station v3.
Chris Amani, the CEO, seems hopeful. He says their community and ecosystem are tough and are pushing through tough times. This bankruptcy thing? It’s a necessary step to keep moving forward while they sort out their legal challenges.
Is crypto banned in India? It’s complicated…
Terraform Labs’ downfall began way earlier
Now that we know the details of Terraform Labs bankruptcy, let’s rewind a bit. Terraform Labs started in 2018 and had a rough patch in May 2022, wiping out a whopping $40 billion in market value. This hit the crypto industry hard. Do Kwon, the guy who started Terraform Labs and was behind TerraUSD and LUNA, found himself in hot water. He was nabbed in Montenegro in 2022 for trying to make a sneaky exit to Dubai with fake documents.
Just hours after Kwon’s airport drama, U.S. prosecutors threw a bunch of charges at him, including securities fraud. They think he played a big role in the crash of TerraUSD and LUNA, which wasn’t great for the crypto market. And yes, Interpol knows who he is now.
This bankruptcy thing came just four days after the U.S. SEC decided to push their trial against Terraform Labs and Kwon to late March. Right now, Kwon’s in a bit of a bind in Montenegro for his travel document drama. Depending on what Montenegro’s justice minister decides, He might be sent to the U.S. or South Korea soon.
What is a Chapter 11 bankruptcy protection?
So, what’s this Chapter 11 bankruptcy protection all about? It’s like a lifeline for businesses in the U.S. when they’re in a financial mess. It’s not just for the big companies; even individuals with hefty debts and assets can use it.
- Who Can File: Chapter 11 bankruptcy is most commonly used by corporations and partnerships, but it can also be filed by individuals, particularly those with large debts and assets.
- Reorganization Plan: The debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. Businesses can continue to operate while under the protection of Chapter 11.
- Debtor in Possession: The debtor typically remains in control of their assets and operates the business under the supervision of the court and for the benefit of creditors. This status is known as “debtor in possession.”
- Creditor’s Committee: A committee of creditors may be established to oversee the reorganization process. This committee plays a significant role in formulating the reorganization plan.
- Automatic Stay: Filing for Chapter 11 automatically initiates an “automatic stay,” which temporarily halts all lawsuits, foreclosures, and collection activity against the debtor.
- Flexibility: Chapter 11 offers more flexibility than other bankruptcy chapters and is, therefore, more complex. It allows for adjustment of debts, both secured and unsecured, and can facilitate comprehensive restructurings.
- Confirmation and Completion: For the plan to be implemented, it must be approved, or “confirmed,” by the bankruptcy court. The process can be lengthy and costly, but it can provide a way for businesses to get back on a stable financial footing.
Featured image credit: Maxim Hopman/Unsplash