The crypto winter has clouded the summer for many Voyager customers. At the start of Voyager’s Chapter 11 filing in July, customer accounts were frozen. Unable to trade their own crypto assets, some frustrated customers rushed to seek legal counsel. Others have started studying bankruptcy law in hopes of finding a legal solution. It wasn’t until late last week, August 4, that some customers found relief from the crypto storm: Judge Michael Wiles approved Voyager’s motion to allow certain customers who had money in their accounts to withdraw money, up to 270 million dollars.
But what about Voyager customers whose crypto assets are not included in the court ruling? Judge Wiles also approved Voyager’s bid proceedings motion, with certain modifications, setting out an accelerated timetable for the sale of substantially all of Voyager’s assets that will conclude with a sale hearing on September 8 in the framework of the bankruptcy procedure. Voyager had approximately $1.3 billion in crypto assets on the platform as of early July 2022. These assets will likely be sold to the company by September 8.
Ignoring the frustrations of many customers expressed through an extensive letter-writing campaign, Voyager continues the bidding process to sell the business. This has been Voyager’s goal from the start, although some Voyager clients are still raising questions about the status of their crypto assets during the August 4 hearing. Voyager claimed ownership of customers’ crypto assets by submitting the most recent user agreement to the court. The most recent version indicates that the crypto assets of the customers are under the name of Voyager. Based on this assertion, Judge Wiles approved Voyager’s bid proceedings motion without questioning the ownership of the crypto assets.
Although a sale process is a typical event in a bankruptcy, it is not a typical bankruptcy. It must not be forgotten. This case concerns Voyager customers and a question arises: can Voyager customers recover their crypto assets without going through bankruptcy proceedings?
The answer may be yes. Here is the argument Voyager customers could make and the next steps they should consider taking:
- Voyager likely holds the private keys to crypto wallets or cryptocurrency transactions for the benefit of Voyager customers
- These private keys are not the property of the bankruptcy estate pursuant to Section 541(b)(1) of the Bankruptcy Code, which provides that ownership of the estate excludes “any power which the debtor may exercise solely in the benefit of an entity other than the debtor”
- Voyager’s act of holding private keys qualifies for the “debtor power” exception because the keys enable Voyager, the holder, to transfer the crypto assets
- Voyager exercises this power solely for the benefit of Voyager’s customers because the security of private keys is essential to customers.
- Unless a Voyager customer has relinquished ownership through their contract with Voyager, Voyager does not benefit from private key retention, as private keys are used only to prove ownership and to transfer cryptographic assets, acts that inherently belong to Voyager customers as legitimate. owners of their crypto assets
- Because Voyager’s act of holding private keys constitutes a power that it exercises solely for the benefit of one entity (Voyager’s customer group), the private keys are not the property of the bankruptcy estate. of Voyager and should be the property of Voyager customers
If the Crypto Assets are not the property of the Bankruptcy Asset, Voyager customers are entitled to their return without seeking a stay waiver in the bankruptcy proceeding. If the court agrees, there are important process points to consider given client identification sensitivities:
- According to Voyager’s most recent user agreement, Voyager holds clients’ crypto assets in omnibus accounts or wallets. This means that each client does not have their own wallet for crypto assets. Therefore, clients will need to appoint a group of trusted individuals or a third party who will be responsible for receiving a small number of private keys for omnibus accounts and transferring or converting them in a manner consistent with the clients’ wishes, traveller’s name
- The transfer or conversion of cryptocurrency assets shall take place on a pro rata basis of Voyager’s customers, and Voyager shall make such information available to the group of trusted individuals or third party designated by Voyager’s customers. Travel.
- In addition, the transfer of private keys must be done in a confidential manner, as any leak of information could allow non-customers to appropriate crypto assets and transfer them before the customer representative can access the assets. .
How do you determine ownership of private keys?
- Ownership of private keys will likely be determined by contracts signed by Voyager and its customers
- Different Voyager customers have signed different contracts with Voyager, so it is important that each customer consult legal counsel to review their contract and determine the nature of ownership under the contract.
- Based on analogous bankruptcy law, a customer’s property status (as opposed to an estate-owned private key) will likely depend heavily on the degree of control Voyager has over that property. Where a debtor merely holds property for the benefit of a creditor, that property does not belong to the debtor’s estate; however, where the debtor uses and/or commingles this property and exercises a high degree of control over the property, the creditor may be found to have waived his ownership rights
What are the potential next steps for a Voyager customer based on this argument?
- Form a group with other Voyager customers who have signed similar contracts regarding private key ownership
- File individual claims or a claim as a group to recover private keys to crypto assets
- Discuss with your attorney other potential arguments to help recover the crypto assets pending the court’s decision on the filed claim(s)
The private key is a key element of the blockchain. It may also be key for Voyager customers to protect themselves through the court-approved sale process that is underway.