Bankrupt crypto lender Celsius Network LLC won court permission to start polling account holders on its proposal to restart as a new user-owned company and distribute an estimated $2 billion of Bitcoin and Ether.
US Bankruptcy Judge Martin Glenn said Monday he’d allow Celsius to begin sending ballots to account holders alongside other voting materials meant to provide a plain-language explanation of the company’s plan to repay customers. Glenn said his approval is contingent upon company advisers providing additional information about the volatility of the crypto industry and challenges that could hinder Celsius’ crypto mining operation.
Celsius has proposed starting fresh under new management led by investment firm Arrington Capital, part of a consortium called Fahrenheit LLC that won the crypto lender’s assets at a bankruptcy auction earlier this year. Customers would be repaid in part through equity in the new company, which will operate Celsius’ mining operation and take over its institutional loans, private equity and venture capital investments as well as $500 million in “liquid cryptocurrency” investments, according to court documents.
The company is on track to start repaying creditors by the end of 2023, Celsius lawyer Chris Koenig said in the hearing.
“There is still a lot of work that remains to be done,” Judge Glenn said. Celsius’ repayment plan is still being opposed by some customers and could be challenged by other creditors. The court is scheduled to consider approving the plan in October.
Creditor Displeasure
Individual Celsius account holders voiced displeasure with the company’s repayment plan during Monday’s hearing, saying they’re being forced to take stock in a risky new venture. Some customers said Celsius’ native CEL token should be returned to them and opposed the company’s plan to value CEL at 25 cents per token.
But Glenn said CEL tokens aren’t going to be returned to account holders. The Securities and Exchange Commission has alleged Celsius and its former chief executive officer viewed CEL as comparable to stock in a public company, which is usually wiped out in Chapter 11. CEL token can’t be issued because the token depended upon Celsius’ value and after Chapter 11 “Celsius won’t exist,” Judge Glenn said.
Federal prosecutors last month charged former Celsius CEO Alex Mashinsky with fraud and accused him of manipulating CEL’s value to artificially inflate the token’s value. Mashinsky’s lawyer has said charges against his client are baseless.
A committee representing Celsius account holders and other creditors said in a court filing that retail borrowers could recover more than 85 cents on the dollar if the Fahrenheit deal closes. The new company will be well-funded with no long-term debt and “will be the first publicly-listed company with significant balance sheet exposure to both Bitcoin and Ethereum,” the committee said. The group also said the plan proposes doling out about $2 billion of those crypto tokens to creditors.
Celsius halted withdrawals in June 2022, a decision that blocked thousands of account holders from about $4.7 billion in crypto held on the platform. The company filed Chapter 11 a few weeks later, disclosing a roughly $1.2 billion shortfall.
The bankruptcy is Celsius Network LLC, 22-10964, US Bankruptcy Court for the Southern District of New York (Manhattan).
