Lepmets & Nõges clients rank first on the Coinloan preliminary creditors list

On the 14^th of December 2023, Coinloan bankruptcy proceedings finally reached a next important stage in the proceedings with the publication ofnotice of examination of the list of creditors. Law stipulates that creditors have no more than 30 days for examining and objecting the claims. No doubt that the unprecedented Coinloan case has become the touchstone of Estonian bankruptcy proceedings regulation which is clearly created for managing cases of significantly smaller magnitude. Considering the extraordinary circumstances, the due date for filing objections to the preliminary creditors list will most likely be extended at least until the end of March 2024.

Proceedings overview: prior to the preliminary creditors list publication

The 14^th of June 2023 marked the start of an international crypto-platform Coinloan bankruptcy proceedings in Estonia. At the time, Coinloan liabilities were estimated at around 204M EUR while assets at no more than 108M EUR. Over 5000 creditors are presumed to hold claims against the Coinloan bankruptcy estate. The proceedings took the Estonian insolvency community by storm with former Coinloan users from all over the world flooding in most major law firms in Tallinn. Understandably, many former Coinloan users were looking for quick answers, preferably in the form of instant and full recovery of their crypto coins. However, there are no quick solutions in Coinloan magnitude bankruptcy proceedings. On the contrary, it will most likely be years before these proceedings come to an end.

The first creditor’s meeting was held on the 19^th of June 2023. The next item on agenda was the submission of creditor claims. The law expressly states that creditors must notify the trustee of their claims against the debtor within two months after bankruptcy declaration. This means that Coinloan creditors had until the 14^th of August to send the trustee their claims (see our previous report on Coinloan bankruptcy proceedings here). Under the Estonian Bankruptcy Act, the trustee must draft the preliminary list of creditors within a month from creditor claim submission due date, or by the 14^th of September 2023 in this case. Already at the time it was relatively clear that one month for preparing the Coinloan preliminary creditors list was not feasible. However, the exact publication time of the list was also completely unknown. All creditors as well as law firms representing the creditors were left to wait and see what happens next.

What is the preliminary list of creditors?

The preliminary list of creditors is the first step in the defence of claims, i.e., establishing the final list of creditors who will get a share from the Coinloan bankruptcy estate. In simplified terms, the preliminary list of creditors is a list of all persons who notified the trustee of their claims against the bankruptcy estate. All former Coinloan platform users presumably have claims equivalent to the value of their crypto stored on Coinloan (i.e., EUR value at the time of the bankruptcy declaration). As already mentioned, all claims must be filed within two months after the bankruptcy declaration. Nevertheless, even up until now, it is still possible to notify the trustee of claims but such claims (if accepted at all) inevitably rank the lowest.

The trustee collects the claims and drafts the preliminary creditors list. All claims are assigned a rank which is essentially a priority for each claim. This is important upon dividing the bankruptcy estate between the creditors at the end of the proceedings. After covering bankruptcy expenses, the remaining money is divided between creditors. First rank claims are satisfied first. If there is money left after fulfilling all first rank claims, then the remaining money is used for second rank claims. If there is something left after paying second rank creditors, then third rank claims get the rest. Chances that all creditors recover in full is almost non-existent as there simply is not enough assets to go around.  The creditors must share the available bankruptcy estate and accept losses.

 Pursuant to the Bankruptcy Act § 153(1) the claims are ranked as follows:

• I rank are secured claims. As of the 27th of December 2023, only 8 creditors were listed in first rank on the Coinloan preliminary list of creditors (all our clients).
   
• II rank are unsecured claims which were sent to the trustee within two months after the bankruptcy declaration (i.e., by the 14th of August 2023). As of the 27th of December 2023, 2426 creditors were listed in the second rank on the Coinloan preliminary list of creditors.
   
• III rank are unsecured claims which were sent to the trustee on the 15th August 2023 or later (i.e., after due date). As of the 27th of December, this list was couple of hundred creditors long. Up to this day, the trustee includes new creditors in the III rank, presumably on a weekly basis.
   

The current list is a preliminary list which means that nothing is confirmed yet. All creditors are entitled to file their objections to (some of the) listed claims to the trustee. Presumably there will be at least some objections from creditors attempting to improve their position in the list. Each creditor is interested to recover as much as possible, but the fact of bankruptcy proceedings inevitably means that there are significantly more liabilities than assets. Objecting is an opportunity to extrude other creditors or their claim amounts as well as argue ranks. Successful objections reduce the claims against Coinloan estate, making the pay-out sums to surviving claims bigger. As mentioned earlier due date for filing objections is expectedly in the end of March 2024. At this stage, the trustee is legally obligated to file objections if there are grounds for this. The exact number, extent and content of objections remains to be seen.

What is next?

Firstly, as the next step, the creditors start drafting and sending their objections to the trustee. Once the time limit for objecting passes, the trustee collects all objections and includes the trustee’s own and allows response from creditors whose claims were objected to. The trustee then collects all responses, drafts the creditors list, and files it for the court approval. The final call is for the court to make. The judge decides which claims and to what extent survive the defence of claims as well as assigns final ranks and distribution ratios. The court approval may be appealed by the trustee, the objecting debtor, objecting or objected creditor as well as by creditors whose request for restoring the claim were rejected. In other words, there is still a long way to go until the final ascertained. Estimated time limit until the final approval of creditor’s list is anybody’s guess. We’d consider it quite the achievement if the creditors list was filed for court approval by the end of this year.  

Secondly, the trustee is yet to dispose of the exclusion claims for excluding some crypto from the bankruptcy estate. The exact number of filed exclusion claims is unknown but it is much smaller in comparison with the number of creditor claims. The chance of success for exclusion claim is below average. Some creditors are willing to take the risk because the reward for successful exclusion claim is recovery of their funds in crypto.

Recovering any crypto is not an available option for any of the persons listed in the creditors list. At best, creditors can recover their crypto value as of 14^th of June 2023 in EUR, most likely considerably less. According to latest information, the Coinloan bankruptcy estate is valued at around 70M EUR, but the trustee has gained factual control over around 7M EUR worth of crypto. Furthermore, we are looking at least a couple of hundred thousand EUR in bankruptcy proceedings expenses. At least some of the crypto must be sold sooner or later to cover the expenses and keep the proceedings going.

Advokaadibüroo Lepmets & Nõges is a law firm based in Tallinn. Our attorneys represent Coinloan creditors in the ongoing bankruptcy proceedings. Feel free to contact our law firm if you have any questions regarding the Coinloan bankruptcy proceedings and/or are looking into objecting to the preliminary creditors list or filing a III rank or the exclusion claim. Our attorneys are happy to help.