Cryptocurrency hedge fund Three Arrows Capital Ltd. has filed for Chapter 15 bankruptcy in a New York court less than a week after it was ordered to liquidate its assets in the British Virgin Islands.

Chapter 15 bankruptcy is a form of bankruptcy that allows for cooperation between U.S. courts and foreign courts when foreign bankruptcy proceedings touch upon U.S. financial interests. In this case, Three Arrows Capital has investors in the U.S. but operates out of the Virgin Islands.

In the July 1 court filing, Three Arrows said its business had collapsed “in the wake of extreme fluctuations in cryptocurrency markets” and its filing was in direct response to the ruling in the BVI.

“By filing the Petition to commence this chapter 15 case (the ‘Chapter 15 Case’), the Foreign Representatives seek to stay active efforts by individual creditors to seize assets and to preserve the status quo and afford the Foreign Representatives an opportunity stabilize the Debtor’s estate, preserve the Debtor’s assets and conduct a complete investigation of the Debtor, claims against its estate, and its assets, including causes of action,” the filing read.

Three Arrows further argues that without the Chapter 15 bankruptcy being granted, “creditors may pursue a value-destructive race to the courthouse to exercise rights in a manner that would enhance their own position vis-à-vis other similarly situated creditors.”

News that Three Arrows Capital was in serious trouble amid the cryptocurrency winter of 2022 emerged in mid-June with a report suggesting that it was facing insolvency after suffering almost $400 million in liquidations from lenders. The company’s investments, which include Ethereum, Solana and Luna, have tanked along with the broader market, putting pressure on the firm.

Although the broad cryptocurrency market is one driver of the firm’s demise, Three Arrows was also heavily exposed to failed algorithmic stablecoin Terra. Three Arrows co-led a $1 billion raise to protect the stablecoin, but the funds invested were depleted during Terra’s crash.

On June 29, the British Virgin Islands ordered Three Arrows to liquidate after creditors sued the company after defaulting on debts. Among the companies chasing debts from Three Arrows was Voyager Digital Ltd. Voyager said on June 27 that it had issued a notice of default to Three Arrows for failure to make required payments on a loan of 15,250 bitcoin and $350 million USDC.

Three Arrow’s failure to pay has resulted in Voyager itself teetering on the brink of insolvency. The company announced on July 1 that it was “temporarily suspending trading, deposits, withdrawals and loyalty rewards.

“This was a tremendously difficult decision, but we believe it is the right one given current market conditions,” said Voyager Chief Executive Stephen Ehrlich. “This decision gives us additional time to continue exploring strategic alternatives with various interested parties while preserving the value of the Voyager platform we have built together. We will provide additional information at the appropriate time.”

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