Power Block Coin LLC, operating under the SmartFi brand, has requested to convert its Chapter 11 reorganization case to a Chapter 7 liquidation, citing administrative insolvency and failed reorganization efforts in the wake of the 2022 cryptocurrency market collapse.
The Utah-based cryptocurrency financial services company filed the conversion motion November 7, 2025, in the U.S. District Court for the District of Utah, arguing that approximately $2 million in unpaid professional fees has rendered the estate "grossly administratively insolvent" and unable to confirm any reorganization plan.
SmartFi, which provided crypto-based exchange, lending, and investment services through its smartfi.com platform, filed for Chapter 11 protection on June 20, 2024, after struggling with liquidity issues stemming from the broader cryptocurrency market turmoil that began in 2022.
Asset Portfolio Dominated by Affiliate Loans
The company's current assets consist primarily of cryptocurrency holdings valued at approximately $40,995 and promissory notes from affiliated entities totaling more than $21 million. The largest asset is an $18.3 million note from Solara Communities LLC, an affiliate developing real estate in Toquerville, Utah, with a 5% interest rate and March 2032 maturity date.
Additional affiliate notes include $1.07 million owed by parent company Blue Castle Holdings Inc. and $1.79 million from SmartFi Lending, both carrying 4% interest rates and maturing in 2028. The debtor noted that none of these affiliate loans were secured by any collateral.
"The Debtor had (and still has) significant, although illiquid, loans in its portfolio," the company stated in its filing, explaining that following market instability, "the Debtor struggled to maintain liquidity necessary to continue its operations."
Banking Relationship Collapse
Prior to filing bankruptcy, SmartFi faced significant operational challenges when its banking institutions closed the company's accounts in December 2023. The company subsequently entered into a services agreement with parent company Blue Castle Holdings, allowing it to use Blue Castle's bank account for dollar-denominated transactions while the bankruptcy court authorized this cash management arrangement.
The debtor currently operates without employees, relying entirely on Blue Castle staff to manage its affairs under the services agreement.
Failed Reorganization Efforts
Despite initial reorganization plans and extensive negotiations, SmartFi's attempts to confirm a Chapter 11 plan ultimately failed. The company initially proposed a plan based on accelerated payments from affiliate projects, particularly the Solara real estate development.
Negotiations involved multiple parties, including Celsius, the largest creditor by claim amount, and culminated in an all-day mediation session with Judge Peggy Hunt that resulted in a joint plan agreement between the debtor and the Official Committee of Unsecured Creditors. However, that deal ultimately fell apart according to the motion.
Legal Authority for Conversion
Under Section 1112(a) of the Bankruptcy Code, SmartFi argues it has the statutory right to convert the case to Chapter 7 liquidation as a matter of course, since it remains in possession, the case was voluntarily filed under Chapter 11, and has never been previously converted.
The motion was filed ex parte under Bankruptcy Rule 1017(f), which allows conversion motions under Section 1112(a) to be granted without a hearing.
"Conversion to chapter 7 will facilitate the efficient liquidation of assets and ensure that the estate's resources are directed toward creditor recovery rather than on an unnecessarily costly and protracted dispute between the Debtor and the Committee," the company argued.
Implications for Cryptocurrency Sector
The SmartFi case represents another casualty of the 2022 cryptocurrency market collapse that decimated numerous digital asset companies. The case demonstrates the particular challenges facing crypto businesses in traditional bankruptcy proceedings, including banking relationship difficulties and the complexity of administering digital assets.
The conversion to Chapter 7 would transfer control to a bankruptcy trustee who would liquidate the company's assets, including its cryptocurrency holdings and the substantial affiliate promissory notes, for distribution to creditors.
The case is being handled by Judge Cathleen D. Parker in the U.S. District Court for the District of Utah under Case No. 24-bk-23041-CDP.
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 14 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.