Celsius Network Approved To Exit Bankruptcy

Tom Jowitt,
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New Jersey-based Celsius Network receives US bankruptcy court approval for a restructuring plan so it can exit Chapter 11

The financial recovery of Celsius Network moved one step closer this week after it received US bankruptcy court approval for a restructuring plan.

It was in July 2022 when New Jersey-based Celsius Network filed for Chapter 11 bankruptcy protection, days after Vermont’s Department of Financial Regulation (DFR) had warned Celsius was “deeply insolvent and lacks the assets and liquidity to honour its obligations to account holders and other creditors.”

That bankruptcy move came after Celsius Network in June 2022 had frozen all withdrawals, swaps, and transfers between customer accounts, citing “extreme” conditions.

Chapter 11

Celsius was one of the biggest crypto lending platforms in the US, which allowed users to lend out their tokens as collateral for other crypto projects in exchange for annual yields of up to 17 percent.

In January this year US bankruptcy judge (Judge Martin Glenn in New York) ruled that Celsius Network owns most of the cryptocurrency that customers had deposited into its online platform.

That meant that most Celsius customers would be last in line for repayment during the crypto lender’s bankruptcy.

The ruling impacted roughly 600,000 accounts that held assets valued at $4.2 billion when Celsius filed for bankruptcy in July 2022.

The company does not have enough funds to fully repay those deposits, and the January ruling meant that most Celsius customers will be lower priority than customers who held non-interest bearing accounts and other secured creditors.

Bankruptcy exit

Now Reuters has reported that Celsius Network has been approved to exit Chapter 11 bankruptcy protection, and the bankruptcy court approved a restructuring plan that will return cryptocurrency to customers and create a new company owned by Celsius creditors.

US Bankruptcy Judge Martin Glenn in Manhattan signed off on the restructuring in an order published on Thursday.

According to Reuters, the reorganised business will be managed by Fahrenheit LLC, a consortium that includes hedge fund Arrington Capital, and it will focus on mining new bitcoin and earning “staking” fees by validating blockchain transactions.

“The Company is working to implement the Plan and is expected to emerge from Chapter 11 in early 2024,” the firm tweeted on X (Twitter).

Lawsuit against founder

Fahrenheit will reportedly buy a minority stake in the reorganized Celsius for $50 million and will publicly list the new company’s stock on Nasdaq, allowing Celsius customers to sell equity shares that they will receive as part of their bankruptcy recovery.

In addition to their stake in the new company, Celsius customers will receive a partial repayment of the cryptocurrency assets they deposited on the platform.

Celsius said on Thursday it would return about $2 billion in cryptocurrency to account holders.

The reorganised firm will also pursue litigation against Celsius founder Alex Mashinsky, who already faces US criminal charges and a New York civil lawsuit for allegedly misleading customers and artificially inflating the value of CEL.

Mashinsky has pleaded not guilty.