Genesis Successfully Secures Legal Bid to Preserve Ownership Stake
Genesis, a bankrupt crypto lender, has won a legal bid to prevent its parent company, Digital Currency Group (DCG), from selling or reducing its ownership stake in the company during Chapter 11 bankruptcy proceedings. This move aims to protect vital tax benefits that hinge on Genesis’s status within the tax-consolidated group led by DCG.
Preserving $700M Tax Benefit for Reorganization
Genesis, which filed for bankruptcy in January, is seeking to utilize approximately $700 million in federal net operating loss carryforwards to reduce its federal income tax liability. These carryforwards are crucial for Genesis’s cash position and contribute to a successful reorganization.
Court Order Imposes Ownership Restrictions
A court order revealed that Genesis has imposed restrictions on ownership modifications to maintain its position within the tax-consolidated group. If DCG’s stake drops below 80%, Genesis risks losing benefits associated with the federal net operating loss carryforwards.
Genesis Carryforwards Linked to 3AC Collapse
The collapse of crypto hedge fund Three Arrows Capital in 2022 had a significant impact on Genesis. The loans extended to 3AC, which had to be liquidated by Genesis, resulted in financial difficulties for the company. This led to Genesis filing for bankruptcy in January.
Court Ruling Protects Ownership Structure for Tax Benefits
The court’s ruling prevents the sale or reduction of DCG’s ownership stake in Genesis, ensuring that Genesis maintains the necessary ownership structure to benefit from the tax advantages tied to its operating losses.
Hot Take: Genesis Secures Legal Win to Protect Tax Benefits
Genesis has successfully obtained a legal victory in its efforts to preserve its ownership stake and secure crucial tax benefits. By preventing the sale or reduction of Digital Currency Group’s stake in Genesis, the court ruling safeguards Genesis’s position within the tax-consolidated group. This move is vital for utilizing approximately $700 million in federal net operating loss carryforwards, which will contribute to the company’s reorganization and overall financial stability. With this legal bid, Genesis aims to maximize its cash position and ensure a successful recovery from the challenges faced by the crypto industry.
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