Account holders at now-bankrupt Voyager Digital Ltd. shouldn’t expect to get all their crypto back as the company reorganizes. 

The crypto brokerage and lender filed for Chapter 11 bankruptcy late Tuesday, renewing unresolved legal questions about how digital assets will interact with US insolvency law. One thing is certain: Voyager doesn’t intend to simply give users back their Bitcoin, Ether and other assets stored on the platform. 

The company’s plan to exit bankruptcy plainly says it expects account holders to be “impaired” by the Chapter 11 process, meaning they won’t be getting back exactly what they’re owed. Voyager intends to repay users with a mix of the crypto they deposited, stock in the restructured company, Voyager tokens and money recovered from bankrupt hedge fund Three Arrows Capital, court papers show. Three Arrows owes Voyager more than $650 million. 

Customers with US dollar deposits in their accounts will be able to reclaim that money “after a reconciliation and fraud prevention process” is completed with Metropolitan Commercial Bank, according to a statement from Voyager.

TANGLED CRYPTO

Voyager doesn’t keep user assets in designated wallets for each customer. It instead mixes deposited crypto into asset-specific pots, like ones for Bitcoin and Ether, according to court papers. The company has about $1.3 billion of crypto assets on its platform, it said in the statement.  

Voyager also lends deposits to third parties to pay interest to customers, a dynamic that users agree to when they sign up for the platform, Chief Executive Officer Stephen Ehrlich said in sworn bankruptcy papers. Billionaire Sam Bankman-Fried’s Alameda Research, Mike Novogratz’s Galaxy Digital LLC and Wintermute Trading Ltd are among those that owed Voyager on account of crypto loans as of its bankruptcy filing, Ehrlich said.

Three Arrows Capital owes Voyager more than $650 million, making the embattled hedge fund by far Voyager’s largest loan counterparty. In total, Voyager has about $1.12 billion worth of loans to third parties outstanding.

The company will need to wade through legal proceedings in the British Virgin Islands to recoup any of Three Arrows loan, fighting with all of the hedge fund’s other creditors to get repaid. 

The bankruptcy is Voyager Digital Holdings Inc., 22-10943, U.S. Bankruptcy Court for the Southern District of New York (Manhattan).