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  • J Huang and S Pettigrove

Celsius creditors feeling the heat over preference claims

Celsius, the crypto exchange and lending platform that went bankrupt 18 months ago, circulated a batch of notices to former customers late last week offering to resolve potential preference claims in the firm's bankruptcy. The move follows Celsius creditors' and the US Bankruptcy Court's approving Celsius' Reorganization Plan late last year.

Celsius has sent notices to customers who made net withdrawals from Celsius greater than USD$100,000 in the 90 days prior to the petition date - that is 13 July 2022 (i.e. creditors with Withdrawal Preference Exposure under the Reorganization Plan).

The notice gives customers three options:

  1. either pay back 27.5% of their net withdrawals to settle any preference claims or avoidance actions (clawbacks), which Celsius may bring against them; or

  2. obtain a court order ruling that the customer has no preference liability to Celsius; or

  3. otherwise resolve their Withdrawal Preference Exposure with the Litigation Administrator after the Effective Date before receiving any distributions under the Plan.

Where a customer refuses to accept Celsius' offer, they may face clawback actions and other claims by Celsius and will not receive any initial distributions under the Reorg Plan. The bankruptcy administrators have also cautioned that:

if the Debtors do not receive your WPE Settlement Payment by January 31, 2024, there is no guarantee that you will be able to settle your Withdrawal Preference Exposure and participate in the Account Holder Avoidance Action Settlement.

The deadline is fast approaching - if a customer chooses to make the settlement payment, they must file an electronic form through an online portal by 25 January 2024, and then make the settlement payment by 31 January 2024, the latter being the anticipated effective date of the Reorg Plan.

For those who accept the offer, the Celsius' bankruptcy advisors has previously projected recoveries of 67 cents on the dollar depending the claim type. 

Customer who reject the offer may need to rely on one of the various clawback defences under the US bankruptcy code, which may be available depending on their individual circumstances.

As part of Celsius’ Reorganization Plan, the US Bankruptcy Court has approved the firm's transition into a new bitcoin mining entity led by a creditor consortium. The plan also reportedly involves the distribution of USD$2 billion worth of Bitcoin and ETH to customers, along with shares in the newly established company.

Due to the fast-approaching offer deadline, customers and other creditors who have Withdrawal Preference Exposure must rapidly consider their options ensure they have monitored their emails used with their Celsius account, and seek urgent legal advice on the offer and the prospects of defending potential clawback actions by Celsius' Litigation Administrator.

Piper Alderman is presently advising a number of Australian Celsius customers on their options.

Written by Jake Huang, Steven Pettigrove and Michael Bacina


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