New Filing By Celsius Shareholders Sets Stage For Acrimonious Battle Over Assets

Crypto Regulation Editors' Choice
New Filing By Celsius Shareholders Sets Stage For Acrimonious Battle Over Assets

The recent move by Celsius Network’s preferred equity holders to request the U.S. Bankruptcy Court of the Southern District of New York to appoint a committee representing their interests seems to have set the stage for a bruising battle between several factions in the crypto lender’s bankruptcy case.

Chapter 11 Cases “All About the Customers”

The Thursday filing by Milbank LLC on behalf of several Celsius Network Series B shareholders held back no punches, claiming the entire bankruptcy process was skewed towards retail customers.

Not only is the UCC laser-focused on maximizing value for the customers, without regard for the equity holders, but the debtors also have made it abundantly clear that the UCC is their partner, and these cases are all about the customer,” the shareholders said in their filing.

The preferred equity holders now want to ensure that they have a seat at the table in negotiations to recoup their investments, as well as get first dibs on proceeds from the sale of specific assets.

Lawyers for the group said a fiduciary is required to take their clients’ side of the legal battle before a plan of reorganization is proposed that could potentially violate the Bankruptcy Code.

Preferred Equity Holders Helped Celsius Raise $750 Million

The preferred equity holders sank about $750 million into Celsius in Series B funding just months before the crypto lender halted customer withdrawals and filed for chapter 11 bankruptcy protection.

Celsius initially closed a $400 million Series B in October 2021, led by growth equity firm WestCap and Caisse de dépôt et placement du Québec (CDPQ), a Canadian-based institutional investor running several public pension plans and insurance programs.

CDPQ is one of the four preferred equity holders agitating for the appointment of an Official Preferred Equity Committee with the same access, standing, and resources as the Unsecured Creditors Committee (UCC) that was set up to represent Celsius Network’s retail customers in the chapter 11 cases.

New Faction Rubbing Other Celsius Creditors the Wrong Way

In a move that could potentially rile the crypto lender’s retail customers, the shareholders’ motion is also asking the court to set a claim ceiling equal to the value of the U.S. dollar as of the filing date of the bankruptcy petition. This effectively means that if crypto prices rise during the course of the bankruptcy proceedings, equity holders—rather than customers—will benefit. But if cryptocurrency falls, retail customers will bear the brunt of the loss.

Additionally, the preferred equity holders believe that Celsius Network’s retail customers have no claim on any of the assets belonging to the company’s non-customer-facing entities, including Celsius Mining and the digital asset custody platform GK8.

While in many cases, a creditors’ committee’s goal of maximizing value may naturally be aligned with the interests of equity holders, that is not the case here, where maximizing value for the customers necessarily means advocating that they have claims against the non-customer-facing entities, which is a directly adverse position to the equity holders.”

Such assertions are likely to alienate the rest of the Celsius Network creditors and further muddy the ongoing bankruptcy process.

Celsius Bankruptcy Case Becomes Crowded

The preferred equity holders are the latest faction to join the Celsius bankruptcy fray. Earlier in the month, an ad hoc group of 64 Celsius custodial account holders filed a complaint in the bankruptcy court seeking to recover more than $22 million locked up by the crypto company. The group alleged that Celsius had contravened the primary language of its terms of service when it suspended withdrawals in June.

In August, another group of Celsius customers from New Jersey, Texas, and Alabama hired a lawyer to help them claim up to $14 million stuck in the crypto lender’s Withdraw accounts.