Crypto-Tunities: Transaction Strategies in the Challenging Crypto Markets | Allen & Overy LLP

With the crypto winter in place and the likely consolidation of market participants, unique and unique opportunities arise to connect buyers with sellers.

In fact, market participants with large cash reserves have indicated interest in using their cash to help troubled crypto firms get through the current challenging market. On the back, among other things, the crypto platform Voyager Digital and its subsidiaries have applied for bankruptcy protection in the hope of finding a buyer or alternatively finding a way to restructure without one. Other troubled crypto companies have sought other solutions. The range of possible transactions in this context seems to be endless. For example, a buyer may want to buy all the equity for a distressed target through a share sale or merger. Alternatively, a buyer can look to acquire the entire or a limited pool of assets of a troubled or distressed crypto company. The type of potential transactions does not end there. The distressed seller may make a spin-off or spin-off of non-strategic assets and related liabilities or businesses. Or a potential buyer may want to carry out an “acqui-hire” in which the buyer engages in a purchase transaction mainly to provide the needy seller’s skilled workforce. In fact, transactions can also be driven by the desire to acquire a distressed seller’s technology more than its existing business through a license or even an option. Finally, a potential buyer can look to engage in a “loan to own” transaction where the buyer advances funds on a secured loan basis to give it the opportunity to come in early and take “pole position” in connection with any future emergency sale that described below. It seems that some well-financed market participants have already begun to engage in this lending strategy.

Each of these types of transactions presents its own set of benefits and risks. And with any distressed seller for whom valuations have fallen dramatically, a ghost of fraudulent transfer claims arises if a sale takes place outside the formal sale process such as a bankruptcy or forced sale, and it becomes difficult to determine whether an opportunistic buyer has paid fair or reasonable equivalent value. for a distressed target or its assets and creditors are paid less than what they owe. Distressed sales can take place quickly in various ways that maximize value and efficiency for sellers and provide protection for buyers:

In court bankruptcy sale

A distressed seller such as Voyager could sell his assets free and free from claims and interests in the assets under section 363 of the United States Bankruptcy Code. A relatively simple auction and sale process on a relatively fast timeline gives the debtor seller a chance to maximize value and gives the successful buyer the protection of a court order approving the sale of the assets free and free from claims or liens and grant. protection against future fraudulent transfer attacks. More importantly, sales orders from bankruptcy courts can override most contractual restrictions on transfers of such contracts, and secured creditors can credit bids in whole or in part of their secured claims.

Extrajudicial UCC forced sale

To the extent that a distressed seller has outstanding loans secured by the assets of his business, it may appear to facilitate a “friendly” forced sale of his secured lenders, either to his existing secured lenders who can credit bids in whole or in part. such a secured claim or to a third party bidder. The notice requirements for forced sales tend to be shorter and the opportunity to exercise caution is more limited. As a result, the process is faster and cheaper than a bankruptcy sale, which benefits existing secured lenders and any potential buyer who has knowledge of the seller and its business. Courts generally recognize the validity of properly executed UCC sales, but such sales do not have the same level of protection with respect to future fraudulent transfer or succession claims as bankruptcy sales (ie a court order) as most UCC sales are made without judicial intervention or supervision. For this reason, it is important to ensure that any UCC sale is in accordance with well-recognized procedures and practices to protect the sale from any future legal attacks. In addition, the lack of legal intervention means that buyers may have to comply with consent requirements for transfers of contracts that may not be necessary in a bankruptcy sale.

Other important considerations

As mentioned above, potential buyers can seek an insider track by strategically buying an existing secured loan slip from a lender to a troubled company in light of the legal right of a secured lender in both a bankruptcy sale and a UCC sale to credit by the outstanding the loan as all or part of the purchase price for both types of sale. It will be crucial for any such party to confirm the completeness of the liens on the assets before negotiating the final purchase of the secured loan, which will constitute the consideration or purchase price in both forms of sale.

If a buyer wants to negotiate and close a sale outside the bankruptcy or foreclosure process, that buyer may want to obtain a “fairness opinion” from a reputable valuation firm to reduce the risk of fraudulent transfer claims from a distressed seller’s creditors.

Finally, it is important to understand exactly what is being purchased, especially on an expedited basis: Crypto firms can be brokers or trustees for clients or both. As we noted in our recent notice, “Oh no, where’s my crypto? What happens to cryptocurrencies when a custodian fails?» The parties must decide “who has what rights” to the assets managed by the distressed seller. seems to be an endless market winter, there are many opportunities to maximize value in difficult times if they make use of the proven strategies for disposing of distressed assets.

This publication was co-authored by Jonathan Cho, David Essex, Todd Fishman, Jonathan Flynn, Daniel Guyder, Laura Hall, Eugene Ingoglia, Elizabeth Leckie, Anthony Mansfield, Gregory Mocek, Bill Satchell, Robin Spigel, Barbara Stettner and Alex Touma.