in Re: Voyager Digital Holdings, Inc

Background

Voyager Digital Holdings, Inc., Voyager Digital Ltd., and Voyager Digital, LLC filed chapter 11 bankruptcy cases in July 2022. After an earlier proposed sale to FTX ended when FTX filed for bankruptcy, Voyager Digital, LLC entered into an asset purchase agreement with BAM Trading Services Inc., doing business as Binance.US. The agreement contemplated transferring substantially all of the debtors’ cryptocurrency and certain other assets to Binance.US, followed by in-kind cryptocurrency distributions to creditors through a chapter 11 plan.

The Bankruptcy Court confirmed the plan on March 10, 2023. The plan included exculpation provisions protecting specified parties from certain liabilities connected with implementing court-approved transactions, including cryptocurrency rebalancing and distributions. The provisions excepted acts determined to constitute actual fraud, willful misconduct, or gross negligence, but the Government argued that they could still restrict future federal and state enforcement actions, including actions involving criminal laws, tax laws, privacy, customer-identification, and anti-money-laundering requirements.

The Government appealed the Confirmation Order and sought a stay pending appeal in the Bankruptcy Court. The Bankruptcy Court denied that request but extended a temporary stay to allow the district court to consider the Government’s emergency motion. Voyager and the Official Committee of Unsecured Creditors opposed the motion, arguing that a stay would delay relief for Voyager customers, increase professional expenses, and could make the planned cryptocurrency distribution impossible.

Legal standard

A stay pending appeal is a temporary order preventing an appealed order from taking effect while the appeal proceeds. The district court considered four factors: the applicant’s likelihood of success or showing of serious legal questions, irreparable harm without a stay, harm to other interested parties, and the public interest. Because the Government was a party, the court treated the injury and public-interest factors together and weighed all of the factors rather than applying an automatic all-or-nothing rule.

Court’s analysis

Judge Rearden concluded that the Government had shown a substantial case on the merits. The court identified serious questions about whether the Bankruptcy Code authorized a bankruptcy court to prospectively protect debtors and non-debtors from future government enforcement, particularly criminal enforcement. The court also questioned whether principles of equity or estoppel could prevent government enforcement before any challenged conduct occurred, and whether the exculpation provision went beyond the protection provided by doctrines such as judicial or quasi-judicial immunity.

The court did not finally decide the merits of those issues in this emergency ruling. It stated that the expedited schedule limited its merits analysis, but held that the Government’s legal arguments warranted further appellate review.

The court found that the balance of hardship favored the Government. Without a stay, the plan could immediately take effect, and substantial consummation could make the appeal moot by leaving no assets available to address the Government’s challenge. The court also found a strong public interest in preserving the Executive Branch’s ability to enforce federal law and in maintaining meaningful appellate review of the exculpation provisions. Although Voyager and the Committee identified serious harms from delay, those harms did not outweigh the Government’s interests under the circumstances described in the opinion.

Disposition

The court GRANTED the Government’s motion for a stay of the Confirmation Order pending appeal. It also ordered expedited briefing: unless the parties submitted a different schedule by April 4, 2023, the Government’s brief was due April 7, Voyager and the Committee’s brief was due April 14, and the Government’s reply, if any, was due April 18. The ruling was a stay pending appeal, not a final decision on whether the Bankruptcy Court’s exculpation provisions were lawful.