Milbank LLC, an international law firm headquartered in New York, has filed a motion with the U.S. Bankruptcy Court of the Southern District of New York seeking orders directing the appointment of an Official Preferred Equity Committee by the Office of the U.S. Trustee.
Series B Shareholders Demand Representation in Bankruptcy Proceedings
The motion was filed on behalf of several institutional holders of Celsius Network’s Series B preferred shares, including Community First Partners, Celsius SPV Investors, Celsius New SPV Investors, and CDP Investissements Inc.
According to the motion, an Official Preferred Equity Committee is necessary to ensure the adequate representation of the crypto lender’s preferred equity holders in Celsius Network’s bankruptcy proceedings. The Series B equity holders are integral to Celsius since they comprise approximately 35% of the company’s shareholding structure.
Lawyers for the shareholders argued that fundamental issues affecting the future of the crypto company that are set to be addressed by the chapter 11 cases directly affect the recoveries of their clients. These issues include which Celsius subsidiaries listed as debtors in the bankruptcy case are liable for customer claims. They also include how proceeds from the potential sale of Celsius assets will be allocated and whether claims against the crypto lender will be paid out in U.S. dollars or crypto assets.
Chapter 11 Cases Favoring Retail Customers at the Expense of Equity Holders
The motion further stated that Celsius Network and the recently formed Official Unsecured Creditors Committee (CelsiusUCC) had progressed in resolving key issues necessary for advancing restructuring negotiations. As such, the preferred equity holders feel it’s important to have their own interests represented in the negotiations by a fiduciary committee with the same access, standing, and resources as CelsiusUCC.
Additionally, the motion indicated that there are only two real economic stakeholders in the Celsius bankruptcy cases: the crypto lender’s retail customers and its equity holders. While the interests of retail customers are protected and pursued by CelsiusUCC, the motion asserted that no efforts have been made to raise the issues, opinions, reservations, or expectations of Series B shareholders.
According to the preferred equity holders, the chapter 11 proceedings have largely been centered around the plight of Celsius Network’s retail customers, with no regard to any other party. For this reason, the shareholders feel they need to have a seat at the table to advocate for their interests and have timely access to necessary information regarding the ongoing cases.
The lawyers further pointed out that Celsius Network’s retail customers have no tangible claim against any of its non-customer-facing subsidiaries, including Celsius Mining and GK8. As such, the motion argues that any value from these non-customer-facing subsidiaries, including the crypto lender’s loan portfolio, mined bitcoin, and the equity in GK8, should be largely used for the benefit of preferred equity holders.
Is Celsius Management Protecting Its Own Interests?
In the motion, the shareholders also made a thinly-veiled attack against Celsius CEO Alex Mashinsky, implying that he and other senior Celsius managers were more focused on pursuing an outcome that benefited CEL token holders rather than equity holders because they were the biggest owners of CEL tokens.
The motion also argued that the importance of an Official Preferred Equity Committee to the ongoing bankruptcy proceedings outweighed any concerns over the potential cost. Additionally, the motion indicated shareholders’ interests were sharply delineated from those of retail customers represented by CelsiusUCC. As such, there will be no duplication of efforts between the two.
A hearing for the motion is set for October 6, and any party wishing to file an objection has until September 29 to do so.