The holding company of troubled crypto lender Genesis Global Capital, Genesis Global Holdco LLC, filed for Chapter 11 bankruptcy protection in New York on Jan. 19. Genesis is the latest crypto platform to file for bankruptcy, joining Celsius, Voyager, BlockFi and FTX.

The application of Chapter 11 provisions to the crypto industry raises a series of new issues for courts. Here’s a preview of what creditors can expect, and what casual observers can learn about the implications of a Chapter 11 process for an entity in the crypto industry.

The Chapter 11 process is going to threaten “crypto anonymity”

Preserving the anonymity of creditors — a key feature of crypto — is at odds with the transparency of the Chapter 11 process, where creditor identities are generally disclosed. Requiring the disclosure of customer names and certain account information presents risks for the creditor and the crypto entity: Individuals may be subject to hacking that exposes their wallet, while the crypto entity may be subject to scams, privacy law violations and client poaching attempts from rivals.

Top 10 Genesis creditors. Source: Genesis bankruptcy filing & Bloomberg

When confronted with this issue, courts have taken divergent approaches. Take Celsius and Voyager, for example. With Celsius, the court rejected its request to seal the identities of European customers covered by United Kingdom and European Union data protection regulations, finding that those rules did not take precedence over United States bankruptcy law. However, with Voyager, the same court allowed it to redact customer information under the same European regulations.

Despite this disparate treatment, a clear trend emerging is toward preserving anonymity — creditor names in the FTX and BlockFi cases remain under seal too — which is illustrative of how the Chapter 11 process is changing to adapt to the crypto space.

Individuals make an unusual appearance among unsecured creditors

An unsecured creditors’ committee (UCC) comprises creditors holding uncollateralized claims whose role is to advocate on behalf of the interests of unsecured creditors. A UCC has wide latitude to investigate and advocate on key issues in the case, including the sale of assets and the creation of a restructuring plan.

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A UCC is typically made up of three to seven holders of the debtor’s largest unsecured claims. In a large bankruptcy, the members are usually entities. The ongoing crypto bankruptcies are unusual in that despite their enormous size, the UCC members are primarily individuals. Only Celsius and FTX have entities on their committees, while Voyager’s and BlockFi’s UCCs are composed entirely of individuals. The composition of the Genesis UCC will likely follow a similar pattern.

This deviation in UCC composition is illustrative of crypto exchange clientele — retail investors rather than big institutions. Individuals, however, may not have the same experience and resources as institutional investors when it comes to fulfilling their role in the UCC.

Screenshots of account balances provide support for claims

Chapter 11 creditors can submit a proof of claim — an official form indicating the amount of debt owed and the basis for the claim — with supporting documentation, which normally takes the form of promissory notes, invoices and contracts.

Interestingly, crypto creditors have been attaching screenshots of their account balances to their proofs of claim. Aside from the unusual nature of this supporting documentation, some creditors may not have any documentation whatsoever. For instance, FTX creditors cannot access their account balances because the platform is offline. Reviewing unsealed proofs of claim reveal that prudent creditors took screenshots of their accounts before FTX became inaccessible, a step Genesis creditors would be advised to take as a precaution.

Creditors of interest-bearing accounts will find it harder to recover

Once a debtor files for Chapter 11, all of its property as of the date of the filing becomes part of what is known as the “bankruptcy estate.” Determining what is part of the bankruptcy estate is crucial, as that is the property subject to administration in the case, which may be part of a sale, liquidation or reorganization.

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In these crypto bankruptcies, the determination of what account a creditor has — interest-bearing or custodial — is likely dispositive on the issue of recovery. The Bankruptcy Code makes a distinction between assets that are held in a customer’s name alone (a typical crypto account) and those assets that have been commingled with other assets, as happens when assets are pooled and loaned out to generate income, which ostensibly was to be used to pay “interest” to crypto account holders.

Just a few weeks ago, the Celsius court ruled that the assets held in interest-bearing customer accounts belong to the bankruptcy estate, meaning recovery for those creditors is dependent on the outcome of the bankruptcy case. Conversely, BlockFi filed a motion to allow its custodial “Wallet” account holders to withdraw funds because they are not the property of the debtor or bankruptcy estate. A ruling has not been issued.

Genesis creditors who participated in the Gemini Earn program will likely face difficulty recovering their assets in light of the Celsius decision. Customers of Genesis wallet products may face a different fate if BlockFi’s motion is successful.

Kaitlyn Devenyns is an attorney at Curtis, Mallet-Prevost, Colt & Mosle LLP. She holds a law degree from Brooklyn Law School. Elisa Botero is an attorney for the firm and holds a law degree from Universidad de los Andes and an LLM from Columbia Law School.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.