The bankruptcy proceedings for Voyager Digital have caused controversy with the US Securities and Exchange Commission. As the court considered a restructuring plan to bring the company out of bankruptcy, Voyager executives proposed to issue repayment tokens and sell some assets to repay customers.
SEC filed additional objections to block the move touting that issuing bankrupt tokens would violate securities laws. But bankruptcy judge Michael Wiles rejected the suggestion, saying regulators would not be allowed to search for Voyager executives.
SEC Aims for Voyager Restructuring Plan
Voyager filed for Chapter 11 bankruptcy on July 5, 2022, after being hit by a Terra implosion. Voyager executives expect to restructure the company and repay more than 100,000 customers under bankruptcy protection. They held an auction to bid for the company’s assets, with Binance US emerging as the highest bidder.
In recent bankruptcy proceedings, the court considered allowing Binance US to acquire the company’s assets and executives to issue repayment tokens to customers. However, on February 22, the SEC objected to the sale, stating that part of the restructuring plan could violate securities laws.
The SEC maintains that the disclosure statement provided by Binance US and other lenders does not prevent the transaction from being illegal. According to the regulator, the sale of the company’s assets can result in a 51% recovery of the funds paid to the company’s users. It also said that the sale of Voyager Tokens (VGX) may mean offering securities that are not registered under federal law.
The SEC didn’t just object to the sale of assets on March 6 submission of objections but it also kicked against the legal protection of Voyager executives or anyone associated with the restructuring transaction. The legal protection states that no US agency, including the SEC, can take enforcement action against any party involved in the Voyager restructuring transaction.
However, in a rebuttal filing, SEC attorney Therese Scheuer argued that the law’s protections are broad and could leave room for Voyager employees and lawyers to violate securities laws.
Court Criticizes SEC Advice on Voyager Token Bankruptcy and Asset Sale
Court not support SEC objections, and in the March 2 hearing, criticized the regulator for giving unclear reasons. Michael Wiles, the judge presiding over Voyager’s bankruptcy case, commented on the Voyager repayment token issuance and asset sale during the third hearing on March 6.
Judge Wiles said the court would not allow the SEC to search for executives involved in the bankruptcy token issuance. This statement further emphasizes the legal protection of the parties involved in the restructuring while withdrawing the SEC’s objections to the plan.
The SEC in its argument, declared the court’s provision as extraordinary and invalid. But judge Wiles explained that giving the SEC authority to fine executives puts anyone involved in a restructuring transaction at risk.
according to BloombergWiles noted that it would not make sense for a bankruptcy case or court to work with that advice. After all, filing for bankruptcy is intended to protect entities and individuals while working out ways to pay off debts and resolve financial issues. Allowing the SEC to punish Voyager executives under legal protection would defeat the purpose of Chapter 11 bankruptcy.
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