Cryptocurrency mining company Rhodium Encore LLC and its affiliated debtors have filed a disclosure statement detailing their proposed joint Chapter 11 plan that would pay creditors in full, including post-petition interest - a rare outcome in bankruptcy proceedings. The plan, filed on May 23 in the U.S. Bankruptcy Court for the Southern District of Texas, is primarily funded by a $185 million settlement with the company's landlord and power provider.
The Bitcoin mining operation, which sought bankruptcy protection in August 2024, proposes to distribute proceeds from the settlement with Whinstone US, Inc. to satisfy all creditor claims while also providing a recovery to equity holders through an "Equity Reserve" - an unusual outcome that reflects the company's underlying solvency despite the operational challenges that drove it into bankruptcy.
"The Debtors believe the Plan provides a full recovery (100% of Claims plus post-petition interest) to all creditors (other than creditors that have agreed to accept lesser treatment) and recovery to shareholders," the disclosure statement notes.
Rhodium was an industrial-scale Bitcoin mining operation with facilities in Rockdale and Temple, Texas. The company utilized proprietary liquid-cooling technology systems and efficiency optimization software to maintain competitive operations in the cryptocurrency mining space. At its peak, Rhodium operated approximately 227.5 MW of deployed capacity with mostly liquid-cooled miners across two operational data centers.
The bankruptcy filing stemmed not from financial insolvency but from an escalating dispute with Whinstone US, Inc., a subsidiary of publicly-traded cryptocurrency mining company Riot Platforms, Inc. According to the disclosure statement, the relationship between Rhodium and Whinstone deteriorated after Riot acquired Whinstone in May 2021.
"Riot wants to either replace those contracts with 'revised hosting agreements on market terms,' or, as it has done with other 'Legacy Hosting' clients, remove Rhodium from the premises and use Rhodium's infrastructure 'as part of [Riot's own] Bitcoin Mining operations,'" the disclosure statement explains, citing Riot's public SEC filings.
The conflict culminated in Whinstone twice shutting off power to Rhodium's operations - first in November 2023 and again in January 2024 - causing an estimated $9 million in lost Bitcoin revenue and significant equipment damage. The power shutdowns precipitated emergency legal actions and ultimately the bankruptcy filing.
The cornerstone of the reorganization plan is a $185 million settlement with Whinstone approved by the bankruptcy court on April 8, 2025. The settlement includes $129.9 million in cash, a $6.1 million return of power security deposit, and $49 million in Riot stock. The transaction closed on April 28, 2025.
Additionally, the debtors sold their Temple, Texas facility for $55.07 million in December 2024 to Temple Green Data, LLC following a competitive auction process. The proceeds were used to pay off debtor-in-possession financing and fund ongoing operations.
Under the proposed plan, all creditors would receive payment in full with interest. Secured noteholders with approximately $64 million in claims will receive 100% recovery, as will general unsecured creditors with approximately $6.7 million in claims. The plan provides for post-petition interest at the federal judgment rate for general unsecured claims and 3.05% for guaranteed unsecured claims.
One complex aspect of the restructuring involves the distribution of value to equity holders. The plan contemplates either a "Settled Equity Split Scenario" reflecting a settlement among various equity interest holders, or an "Interpleader Scenario" where the equity reserve would be deposited with the bankruptcy court to resolve disputes about proper allocation.
The disclosure statement describes significant pre-bankruptcy litigation, including multiple lawsuits with Whinstone that consumed substantial resources. The company cited defending these actions in "various fora" as "not only costly, but also disruptive to the operations of the Company, making planning for business operations and budgeting extremely difficult."
The plan also establishes a Rhodium Litigation Trust to pursue certain causes of action for the benefit of claim and interest holders. According to the disclosure statement, the litigation trustee "will be authorized, but not directed, to pursue the Trust Causes of Action and distribute the proceeds in accordance with the Plan."
A hearing to consider approval of the disclosure statement is scheduled for July 8, 2025. The debtors are represented by Quinn Emanuel Urquhart & Sullivan, LLP.
"The Debtors believe the Plan is in the best interests of all stakeholders and urge the holders of Claims and Interests in Class 10 and classes 9a-f, as applicable, vote in favor thereof," the disclosure statement concludes.
This article was prepared using Stretto Conductor, our new AI-powered assistant that's here to help. Stretto Conductor was able to create this summary of a 76 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Stretto Conductor may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.