Cryptocurrency lending platform Cred Inc. has filed for bankruptcy after citing irregularities in the handling of its corporate funds last month by a “fraudulent perpetrator.”
The loan company in cryptocurrencies, , Cred Inc, based in the United States, solicitous voluntarily filed for Chapter 11 bankruptcy protection under the United States Bankruptcy Code for the District of Delaware, in order to explore various strategic alternatives that would allow for the restructuring of its balance sheet or the sale of the company.
Cred Inc. is a multinational company incorporated in the city of San Francisco, United States, that offers custody and lending services with several of the most important cryptocurrencies in the digital markets, such as Bitcoin, Ethereum, Litecoin, among others, in more than 100 countries around the world.
However, despite presenting itself as a solid company, Cred Inc. cited irregularities in the management of its assets at the end of October, and now, just a week later, it has filed for bankruptcy.
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Liabilities between $100 and $500 million dollars
In its bankruptcy filing, Cred Inc. informed authorities that it has assets (properties and resources) in the order of $100 million, but that liabilities (debts and obligations) could be between $100 million and up to $500 million in digital assets, due to bad practices that caused the loss of funds.
In October, Cred Inc stated that its balance sheet had been negatively affected by several irregularities committed by a fraudulent author, who mishandled the company's funds, and so it began a process to conduct an internal accounting of its assets and determine the damage caused by these bad practices.
In light of this situation, the company announced the temporary closure of its operations until it could determine the severity of the situation, and indicated that it would provide an update on the situation in the next 2 weeks.
Bankruptcy declaration
Now, a week after announcing this dire situation, the company has filed for bankruptcy, reporting that its total debts and obligations far exceed the value of its assets.
To try to mitigate the effects of this situation, Cred Inc appointed Grant Lyon, a specialist with more than 30 years of experience in corporate restructuring, expert testimony and corporate governance, to serve as the new Independent Director of the Board, and as Chairman of the Restructuring Committee of Cred Inc. In its statement, Cred Inc notes that Grant was selected to serve in these roles within the company because of his ability to perform a “fair and objective analysis of the company’s operations, develop strategic plans, analyze cash flow, propose liquidity alternatives, conduct negotiations and other restructuring alternatives that serve the best interests of the company and its clients.”
Likewise, the cryptocurrency lending platform announced the hiring of the firm Paul Hastings LLP, who will act as legal advisor throughout the process, in the case of Chapter 11 of the US Bankruptcy Law; in addition to the signature MACCO Restructuring Group, which will serve as financial advisor to Cred Inc. to evaluate mergers, acquisitions and other restructuring opportunities for the company.
Chapter 11 Protection of the US Bankruptcy Law
Cred Inc.'s request for protection under Chapter 11 of the United States Bankruptcy Law gives the company a second chance, as it seeks to safeguard its funds and maximize its value for its creditors. As explained by the Administrative Office of the United States Courts, when a person or company files for Chapter 11 of this law, it seeks protection for its assets in order to design and establish a reorganization plan that allows it to keep its business alive and pay its debts over time.
“When a company files for Chapter 11 bankruptcy in the United States, it means that it is undergoing a process of corporate restructuring. There is a big difference between Chapter 11 and Chapter 7.”
The institution states that Chapter 7 proceeds in specific bankruptcy terms that force companies to close their operations, while Chapter 11 allows companies to continue operating, to design strategies to cover and pay all their debts. Although the process of restructuring and reorganizing a company takes time, the Office highlights that it allows operations to be resized and adapted to the new demand environment, reorganizing financial balances and allowing companies to reemerge as more "agile, resilient and sustainable" businesses.
CRED token crash and lawsuit from Uphold
Since the news broke, Cred's native token, LBA, has dropped significantly, from a value of $0,017 USD on October 10 to $0,008 USD at press time, according to data from the platform. CoinMarketCap.
Source: CoinMarketCap
On the other hand, Cred Inc may face a lawsuit from its partner Uphold, a cloud-based financial services platform, which published a release stating its intention to pursue legal proceedings, citing “breach of contract, fraud and related claims.”
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