Celsius Loan creditors plan appeal of Celsius' reorganization plan amid frustrations over recoveries
Quick Take
- Celsius Loan creditors are actively looking into filing an appeal of Celsius’ reorganization plan as they see lower-than-expected recoveries from the fallen lender’s estate.
- The group of creditors is talking to several lawyers about filing an appeal premised on two key claims.
Crypto traders are exploring ways to legally challenge Celsius' reorganization plan, as they argue the agreement disproportionately favors some creditors over others, sources familiar with the matter told The Block. The existing plan, they say, has significantly diminished recoveries for customers with Loan accounts holding debts from the lender's estate.
Creditors who borrowed from Celsius are consulting with "several" lawyers to see if they can appeal the reorganization plan, a source told The Block. The creditors want to recover some of the funds they used as collateral on the now-defunct platform, according to the same source, who is a Loan creditor.
It's unclear whether Loan users will be able to file an appeal, as the Bankruptcy Code has deadlines that limit when an appeal can be filed, according to Weil Restructuring. Generally, an appeal must be filed within "14 days after the entry of the judgment, order, or decree being appealed," the federal rules of bankruptcy procedure show. It's possible the court could approve changes to the plan, although the process for doing so would likely be complicated.
Celsius Loan creditors say they don't yet have a timeline for mounting a potential legal challenge, noting they're still in the preliminary stages of exploring their options. A source told The Block that the lender’s major Loan creditors would finance any forthcoming legal action from the group.
Creditors' push to challenge the handling of their claims comes amid a resurgence in digital asset prices that has raised two critical questions for bankruptcy courts and their stakeholders: What is the true value of creditors' crypto holdings; and in what form should those holdings be returned?
Chief Judge Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York approved Celsius’ restructuring plan last November, over a year after the lender declared bankruptcy in July 2022. However, the execution of this plan resulted in lower-than-expected payouts for Celsius Loan customers, with some creditors alleging they received less than 30% of what they believed they were owed, according to one creditor.
According to a source close to the matter, Celsius Loan account holders want to file an appeal based on two main claims.
The first claim asserts that the court failed to ensure "fair and equal" treatment between two groups of creditors: users of Celsius Earn, an interest-yielding crypto account, and customers of Celsius Loan, a collateralized crypto loan service. A creditor told The Block that Earn creditors' claims were processed earlier this year, weeks before those of Loan customers, resulting in higher recoveries for users of the company's flagship interest-bearing product.
The second claim challenges an order dated December 27, 2023, which directs that Celsius’ new mining entity be capitalized with $225 million from the lender's bankruptcy estate. Some Loan creditors argue that this funding should have been allocated toward enhancing creditors’ recoveries instead, one creditor noted.
Celsius' lawyers had not responded to The Block’s request for comment at the time of reporting. It should be noted, however, that the valuation and payout of a bankruptcy claim involve numerous factors, complicating comparisons of creditors’ recoveries.
Update: Provides details on the bankruptcy code's rules for filing an appeal (21:55 UTC).
Disclaimer: The Block is an independent media outlet that delivers news, research, and data. As of November 2023, Foresight Ventures is a majority investor of The Block. Foresight Ventures invests in other companies in the crypto space. Crypto exchange Bitget is an anchor LP for Foresight Ventures. The Block continues to operate independently to deliver objective, impactful, and timely information about the crypto industry. Here are our current financial disclosures.
© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
