A bid by bankrupt cryptocurrency lender Genesis to prevent parent company Digital Currency Group (DCG) from selling or reducing its stake in the business until Chapter 11 proceedings are concluded has been successful.
A recent court order reveals that Genesis attempted to obtain specific tax benefits by preventing any changes to ownership. Only if Genesis stays a member of the tax-consolidated group, of which DCG is the common parent, are the benefits applicable.
A November motion seeking the block reveals that Genesis would forfeit benefits on approximately $700 million in “federal net operating loss carryforwards” should DCG’s ownership of the lender drop below 80%.
The motion stated that the carryforwards could “translate into future tax savings that would enhance the Debtors’ cash position for the benefit of all parties in interest and contribute to a successful reorganisation” and that they could be used to reduce Genesis’ federal income tax liability in current and future years.
The motion claims that Genesis’ carryforwards are directly related to Three Arrows Capital’s collapse as a cryptocurrency hedge fund in 2022. The lender declared bankruptcy in January following a turbulent year for the cryptocurrency market that saw a number of well-known companies fail one after another.