Voyager Digital's one-of-a-kind bankruptcy

Voyager Digital filed for Chapter 11 bankruptcy protection on Tuesday, enclosing documents containing many revelations, not least of which being the way the Toronto-based crypto lender describes its own business.

Why it matters: That detail highlights the uniqueness of the current proceeding, one that will be watched keenly by regulators and investors as the firm embarks on a journey to untangle its books in the public eye, as a crypto shop.

• Call it a "Frankenstein bankruptcy," Robert Honeywell, restructuring partner at K&L Gates, tells Axios.

Quick take: Bankruptcy filing forms are ill-suited for a crypto lender.

• Voyager, unable tick of a description of its business from the listed choices—health care business, single-asset real estate, railroad operator, stockbroker, commodity broker, clearing bank—nay, checked off "none of the above."
• It described its business as a brokerage.
• Peculiar, because the type of bankruptcy proceeding for which it filed doesn't match the business described.

Between the lines: "If you look at the plan they filed, they’re still trying to treat this like a broker/dealer bankruptcy, because they put customers in a different class of unsecured creditors," Honeywell of K&L Gates said.

• "And everyone else is in other classes. In a broker/dealer bankruptcy, customers get priority for their “securities accounts” and everyone else gets what’s left."
• Honeywell is referencing what is called a SIPA liquidation.

Context: Voyager appears to be trying to stay in-line with regulator expectations.

• Recall Coinbase in May had to soothe concerned customers about a potential bankruptcy after the SEC asked the company to update risk disclosures in filings to treat customers as "unsecured creditors."
• That's how Voyager is treating customer accounts too.

The big picture: This will impact who — customers and other creditors — gets paid on their claims and in what order, both in this process and potentially others that follow in the crypto world.

What they're saying: CEO Stephen Ehrlich tweeted following the bankruptcy filing and a statement posted to Voyager's website that customers with crypto in their accounts will be recouped in some way via the reorganization.

Yes, but: The current restructuring plan is subject to change. Voyager's filing reads:

• In June, Voyager enlisted Moelis to gauge buyer appetite for their business or a cash injection and "several parties indicated interest in participating in a potential in-court transaction."
• Voyager is calling its tentative plan a "stalking horse" proposal, in which Voyager will engage with third-party investors in sponsoring the plan or providing alternative financing for full or partial ownership of the reorganized company, according to filings.
• That piece of it is noteworthy, too.

The intrigue: "They may want to spur other offers," Honeywell said. "They have decided to file right away, without a deal apparently with their main creditors, actually quite unusual."

• Indeed, the bankruptcy filings indicate Voyager is still negotiating.
• "The real question is even if they filed as a Chapter 11, will customers who have yield bearing accounts with Voyager say 'I’m not just a normal unsecured creditor, I’m a securities holder,' even though, no regulator has said they are that," Honeywell said.
• A customer claiming to be a securities account holder, Honeywell speculates, would be moved to the front of the line of unsecured creditors.

"This is the untested proposition: Regulators have been hinting that [digital assets] are securities, but that won’t be tested until someone claims they’re a securities customer," he said.

Voyager Digital declined to comment.

What's next: Assuming the proposed restructuring plan stays intact, Voyager would have to provide a fresh estimate of what their creditors are owed and put it to a vote.

• "If no one challenges and everyone votes in favor, it might just sail through," Honeywell said.

Our thought bubble: This crypto bankruptcy will also effectively test the so-called "Community." If they can all agree, the proposed plan could sail through the process. Infighting, however, will drag it out.

What we're watching: "Bankruptcies are highly contested battles and there is a whole industry of people who buy claims in order to fight in bankruptcy court," Honeywell said.