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December 21, 2020 – The Court hearing the Cred Inc. cases issued an order approving (i) proposed bidding procedure for the sale of assets and (ii) a proposed auction/sale timetable culminating in a January 18, 2021 auction and a February 3, 2021 sale hearing. [Docket No. 270].
The order notes: "If the Debtors have not executed a binding Stalking Horse Agreement for the Assets on or prior to January 15, 2021, the Debtors shall terminate any sale process, which shall include the termination of [investment banker] Teneo Capital LLC, unless the Debtors and the Committee agree that Teneo Capital LLC shall continue to be retained."
Last week, the Debtors informed the court that their sale process had the qualified support of their official committee of unsecured creditors (the "Committee"), with the Committee to have an "absolute veto over the selection of the stalking horse bidder."
Expectations in respect of any hoped for stalking horse and sale(s), however, will be somewhat tempered by the Court's December 18th decision to appoint an examiner to investigate prepetition "shenanigans;" that order also (for the moment, and citing the presence of new management) rejecting motions by certain creditors (the "Moving Creditors," see below) and the U.S. Trustee assigned to the Debtors' cases to take the more radical steps of dismissal, conversion or appointment of a Chapter 11 trustee.
The November 18 motion of the Moving Creditors accused the Debtors of running “a cryptocurrency financial platform that is rife with fraud and deception on ‘Madoff’ level proportions” and of having assets almost as illusory as their recently pilfered Bitcoin. For its part, the U.S. Trustee made it very clear that the Debtors' present management was anything but detached from the shenanigans.
The bidding procedures motion explains, “[t]he Debtors, with the assistance of their advisors, have determined that a sale or sales (the “Sale(s)”), which may be consummated pursuant to section 363 of the Bankruptcy Code or through a chapter 11 plan, of some or all of the assets of one or more of the Debtors (such assets or any subset thereof, collectively, the ‘Assets’) would maximize the value of their estates for the benefit of all stakeholders. In particular, the Debtors are hopeful that the marketing process will yield multiple offers for the purchase of the Debtors’ business as a going concern, preserving the jobs of the Debtors’ highly specialized engineering and trading staff and providing a new path forward for the business. Additionally, the Debtors believe that their proprietary technology for cryptocurrency-lending and investment is an attractive and valuable asset that could generate substantial value for the estates.
The Debtors believe that the proposed Bidding Procedures will enable them to expeditiously complete these chapter 11 cases and maximize value for all stakeholders. In formulating the Bidding Procedures, the Debtors balanced the need to provide adequate notice to potential purchasers and other parties in interest with appropriate concern to preserve the Debtors’ liquidity and minimize costs. The Debtors believe that the time periods proposed in the Bidding Procedures will provide all parties with sufficient time and information to formulate competitive bids for the Assets.
The Debtors are authorized, but not obligated, in an exercise of their business judgment and after consultation with the Consultation Parties, to (i) select one or more Stalking Horse Bidders and enter into a purchase agreement with such Stalking Horse Bidder(s) (each, a 'Stalking Horse Agreement') and (ii) provide bid protections (the 'Stalking Horse Bid Protection'”) to any such Stalking Horse Bidders, including a Termination Payment not to exceed three percent (3%) of the Stalking Horse Bidder’s purchase price or a comparable amount as agreed upon by the Debtors plus the Stalking Horse Bidder’s reasonable professional fees and necessary expenses. For the avoidance of doubt, if the Stalking Horse Bid is selected as the Baseline Bid for the Assets (or a particular subset thereof), a topping bid must include a minimum purchase price in an amount equal to the sum of (a) the Baseline Bid, (b) the Termination Payment, and (c) the applicable Minimum Overbid [not specified] (such topping bid, a 'Stalking Horse Overbid').”
- Auction if required: January 18, 2021
- Objection Deadline: January 27, 2021
- Sale Hearing: February 3, 2021
Moving Creditors Motion
On November 18th, Krzysztof Majdak and Philippe Godinea (the “Moving Creditors”) filed a motion requesting that the Debtors’ Chapter 11 cases be (i) dismissed, (ii) converted to cases under Chapter 7 or (iii) put in the hands of a Chapter 11 trustee [Docket No. 62]. The Moving Creditors argue that $54.0mn of assets currently claimed by the Debtors are either "fictitious" or "uncollectable," leaving "only $14 million in assets to repay $136.499 million in liabilities, or approximately 10% of the outstanding liabilities."
"Time is of the essence," they continue, "there are no prospects of curbing the losses because there is no viable business." Matters are being made worse still, they argue, given that the "Debtors are being run by professionals with no expertise in cryptocurrency" with the notable exception of the Debtors' co-founder and still CEO Daniel Schatt, "the very person who is responsible for the Debtors’ demise." NB: See further details on the Moving Creditors' motion in separate coverage.
About the Debtors
On November 7, 2020, Cred Inc. and four affiliated Debtors (“Cred” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-12836. At filing, the Debtors, a San Mateo, California-based cryptocurrency global financial services platform serving customers in 183 countries, noted estimated assets between $50.0mn and $100.0mn; and estimated liabilities between $100.0mn and $500.0mn.
According to the Debtors: “Cred is a global financial services platform serving customers in 183 countries. Cred is a licensed lender and leverages a substantial balance sheet and proprietary technology to provide business and retail credit and to allow its customers to earn a yield on more than 15 crypto and fiat currencies through its partner network.
Founded by former PayPal veterans and based in the San Francisco Bay Area, Cred brings together a diverse team of entrepreneurial leaders to leverage machine learning and the power of blockchain technology.
Cred’s mission is to harness the power of blockchain to allow everyone to benefit from low-cost credit products.
Using the power of partnerships and blockchain technology, we dream of an open, fair and global financial infrastructure."
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