Terraform Labs (TFL) the bankrupt cryptocurrency firm co-founded by Do Kwon is set to face a Chapter 11 bankruptcy reorganization hearing on September 19.

The hearing will be crucial in shaping the companys future as it navigates the aftermath of the Terra ecosystems dramatic collapse in 2022, which triggered extensive legal and financial challenges.

Fallout from TerraUSD and LUNA Collapse

The courts ruling will essentially decide if Terraform Labs can successfully restructure and potentially recover from bankruptcy or if it will be compelled to liquidate its assets and shut down operations permanently.

Terraform Labs is the company behind the Terra blockchain, which is known for its ill-fated algorithmic stablecoin TerraUSD (UST) and LUNA. On May 9, 2022, UST began to lose its peg to the US dollar, causing its price to plummet by 90% within a week, while LUNA, once a top ten cryptocurrency, dropped to near zero from a high of over $100.

The collapse wiped out nearly $45 billion in market value. Terraform Labs halted the Terra blockchain on May 13 as attempts to stabilize the system failed. The incident eroded investor confidence and prompted heightened regulatory scrutiny, which ultimately led to a lawsuit filed by the US Securities and Exchange Commission (SEC) in February 2023.

The latest development comes exactly eight months after Terraform Labs filed for Chapter 11 bankruptcy in Delaware in January 2024, starting a complicated legal process. Kwon also faced legal action, leading to a $4.5 billion settlement with the SEC in July, which banned both Terraform and the co-founder from the crypto industry.

The company is now looking to sell assets like Pulsar Finance, Station, Enterprise, and Warp.

3AC Liquidators Sue Terraform Labs

Last week, the liquidator of the Three Arrows Capital (3AC) sued Terraform Labs for $1.3 billion, alleging market manipulation of Luna and UST, which led the now-defunct hedge fund to invest heavily before the tokens collapse. This lawsuit aims to recover funds for 3ACs creditors following the hedge funds downfall.

3ACs collapse followed shortly after Terras downfall, leading a British Virgin Islands court to appoint Teneo as the liquidator to recover assets and repay creditors. The lawsuit against TerraForm Labs is one of several actions, alongside claims against 3AC founders Su Zhu and Kyle Davies.