Voyager’s Chapter 11 plan gains committee support after settlement

By Sarah Lizee

Olympia, Wash., Oct. 19 – Voyager Digital Ltd.’s amended Chapter 11 plan has the support of the official committee of unsecured creditors, according to a letter filed by the committee to the U.S. Bankruptcy Court for the Southern District of New York.

The committee had previously objected to the disclosure statement and plan, mainly over the releases of Voyager’s claims against its directors and officers.

The committee then investigated to determine the most efficient and effective resolution of potential claims against Voyager insiders, including Stephen Ehrlich, Voyager’s chief executive officer, and others.

That investigation revealed that Ehrlich and Voyager’s chief commercial officer were “extremely careless” in their inquiry of Three Arrows Capital’s (3AC) creditworthiness, and thus, in their decision to loan almost $1 billion of Voyager assets to 3AC, the committee said.

As a result, the committee concluded that the debtors have valid and substantial claims against Ehrlich and the CCO for breach of their duties.

The committee then investigated Ehrlich’s and the CCO’s personal finances to determine the extent of their assets that would be available to pay a judgment if the plan’s wind-down entity successfully prosecuted Voyager’s claims against them. But, neither Ehrlich nor the CCO currently have assets that would justify the uncertainty and expense of protracted litigation over confirmation of the plan, the committee said.

In light of the limited collectability, a settlement was negotiated with Ehrlich and the CCO.

Under the settlement, Ehrlich will pay $1.125 million, and contribute any tax refund he may be entitled to receive on account of the $1.125 million for the benefit of creditors.

And, 3AC claims against Ehrlich and the CCO may still be prosecuted, but they’ll be paid solely from the applicable D&O insurance policies.

Any indemnification claims asserted by Ehrlich and the CCO are subject to certain subordination restrictions to creditor claims.

Any prepetition claim by Ehrlich against Voyager will be subordinated in full to creditor claims.

Any prepetition claim by the CCO for assets he personally has on the Voyager platform will be subordinated in part (half) to creditor claims.

The settlement also requires Ehrlich and the CCO to forgo and subordinate any rights they have to the proceeds of the second of Voyager’s two $10 million policies. Unlike the earlier $10 million policy, the second one was taken out shortly before the bankruptcy cases were filed at a time in which Voyager was insolvent. The committee said it believes that the wind-down entity can bring an avoidance action to recover for the benefit of creditors the $10 million Voyager paid to the insurer under that policy.

If the financial disclosure statements that were provided by Ehrlich or the CCO are ever adjudicated to have been materially inaccurate, the releases given to them become void and their personal assets thus become subject to any judgment against them.

The committee is encouraging creditors to vote to accept the plan. Creditors have until Nov. 25 to do so. The plan hearing is Dec. 6.

Voyager Digital is a cryptocurrency broker based in New York. The company filed bankruptcy on July 5 under Chapter 11 case number 22-10945.

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