Crypto firm bankruptcies and resulting disruption in the crypto ecosystem will continue to exacerbate liquidity and regulatory concerns in this space. Signs of contagion are evident as prices of almost every cryptocurrency type have halved in recent months. Since all participants supporting the crypto ecosystem are at risk, managing that risk is critical.
Fund managers should be prepared on multiple fronts, as the following examples illustrate:
Everything, everywhere, all at once is our risk thesis for 2023, but one must not forget about concentration risk. This issue has rocketed up diligence agendas for LPs and GPs alike as the collapse of Silicon Valley Bank proved it really was the bank for venture capital.The entry of SVB into receivership on March 10, 2023 highlighted just how central it had become to U.S.
The Consolidated Appropriations Act of 2021 (the CAA), which President Trump signed into law on December 27, 2020, amends several provisions of the Bankruptcy Code. While a number of the amendments are applicable only to small businesses (e.g., businesses eligible to file under the new small-business subchapter of the Bankruptcy Code and/or businesses eligible to receive PPP loans), several others have more general application, as discussed below.
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Amendments of More General Application
In the United States, in a typical plain vanilla lending arrangement, if a counterparty files for bankruptcy, an automatic stay of enforcement actions is imposed that would prevent a lender from (i) foreclosing on the property of the debtor, (ii) terminating contracts with the debtor, (iii) commencing or continuing certain enforcement actions against the debtor or its property and/or (iv) setting off amounts owed under such arrangements (in each case unless a motion is filed and granted in the related bankruptcy case).
In In re KB Toys Inc.,1 the US Court of Appeals for the Third Circuit affirmed the holdings of the lower courts that claims subject to disallowance under Section 502(d) of the Bankruptcy Code are “similarly disallowable in the hands of the subsequent transferee.” According to the Third Circuit, when a creditor owes property to the estate, until that property is returned to the estate, that creditor’s claim, regardless of who holds it, is impaired, and the subsequent sale of that c
On May 4, 2012, the Delaware bankruptcy court inIn re KB Toys, Inc., et al. (KB Toys), handed down a thoughtful decision addressing the issue of whether impairments attach to a claim or remain with its seller. The KB Toys court held that “a claim in the hands of a transferee has the same rights and disabilities as the claim had in the hands of the original claimant. Disabilities attach to and travel with the claim.”