On Monday, a U.S. bankruptcy judge authorized Celsius Network, a cryptocurrency lending platform, to continue seeking approval from its creditors for its bankruptcy resolution strategy. This plan entails the company emerging from Chapter 11 as a new entity, owned by those owed money by the company.
During a session at the U.S. Bankruptcy Court in Manhattan, Judge Martin Glenn approved Celsius’s disclosure statement and the materials intended to solicit feedback from creditors. The judge noted that Celsius had provided enough information for creditors to make an informed decision about the proposed restructuring.
While some creditors are opposed to the plan, the official committee that represents junior creditors supports it. This committee intends to suggest that Celsius’s clients vote in favor of the proposed strategy.
Celsius Network, headquartered in New Jersey, filed for Chapter 11 bankruptcy in July 2022. This action was consistent with a trend among a number of cryptocurrency lenders who faced financial difficulties due to the industry’s rapid expansion during the COVID-19 pandemic. According to court documents, Celsius had approximately 600,000 customers with approximately $4.4 billion in interest-bearing accounts on its platform when it filed for bankruptcy.
As part of its bankruptcy strategy, Celsius plans to return a portion of retail customers’ cryptocurrency deposits. In addition, the Fahrenheit Group would assume control over the remaining business operations, such as bitcoin mining and staking. This consortium includes entities such as Arrington Capital, a blockchain-based venture capital firm.
Celsius estimates that approximately 67% of its clients, specifically those who held interest-bearing Earn accounts, will receive a refund. This recovery would include liquid crypto assets such as Bitcoin and Ether, ownership shares in the new entity, and the proceeds from legal actions taken against the company’s founder, Alex Mashinsky, and other parties following the bankruptcy. It is essential to note that customers with non-interest-bearing accounts can anticipate a relatively higher recovery.
The Fahrenheit Group has decided to invest $50 million to acquire a minority stake in the new business. As part of this agreement, the shares of the new company will be listed on the Nasdaq stock exchange. According to legal documents, this action is intended to allow Celsius customers to sell the equity shares they will receive as part of their bankruptcy recovery.
On the agenda of the restructured company is legal action against Alex Mashinsky, who is currently facing criminal charges in the United States and a civil lawsuit in New York. The allegations against Mashinsky include allegedly deceiving customers and artificially inflating the value of his company’s proprietary cryptocurrency token. Mashinsky has entered a not-guilty plea in response to these charges.
According to official court documents, creditors of Celsius have until September 20 to vote on the proposed plan, and the company hopes to obtain the court’s final approval for its reorganization strategy by October 2.