Celsius customer clawbacks coming as creditors confirm Reorg Plan
Fourteen months after Celsius Network filed for Chapter 11 bankruptcy protection in the US, creditors this week approved a Reorganisation Plan (Plan) with more than 98% of retail creditors voting in favour, which could see a recovery rate of between 67 and 85 cents on the dollar.
The US Bankruptcy Court for the Southern District of New York will hold a confirmation hearing for final approval on 2 October. If approved, the reorganisation will impact about 600,000 customer accounts that held assets valued at US$4.2 billion.
The Plan contemplates that the Celsius bankruptcy estate will have the right to claw back, or offset customer withdrawals and other transactions in the months leading to Celsius' bankruptcy. The US bankruptcy code allows clawback of transactions that took place up to three months before Celsius filed for Chapter 11 bankruptcy protection on 13 July 2022.
In summary, the Plan says that:
Customers who made net withdrawals of less than US$100k in the 90 days prior to bankruptcy and agree to the Plan will not face clawback claims;
In contrast, customers who had net withdrawals of between US$100k to US$250k can settle claims for 27.5% of their funds;
The bankruptcy estate may pursue those who withdrew over US$250k.
The clawback provisions could impact customers who withdrew significant funds shortly before Celsius went down unless they can rely on one of the various clawback defences under the US bankruptcy code. There are certain defences under US bankruptcy laws which may be available to these creditors, depending on their individual circumstances.
Stablecoin issuer Tether recovered US$840 million from Celsius by selling collateral, and Voyager Digital (another bankrupt crypto firm) withdrew at least US$7.7 million from Celsius in the 90 days before it went bankrupt. It remains to be seen whether they will be able to rely on defenses typically available to financial intermediaries under US bankruptcy legislation.
If approved by the Court, the Plan will also see the sale of Celsius assets to crypto consortium Fahrenheit Holdings, which won a bid to acquire the Celsius assets in May 2023.
Celsius halted withdrawals in July 2022 and filed for bankruptcy as crypto winter set in (following the collapses of Luna/Terra and Three Arrows, and followed by FTX). The Celsius bankruptcy has dealt with a number of complex and novel legal issues relating to creditor claims and crypto-assets. For example, in January this year, the US bankruptcy court found that certain assets held by Celsius were property of the company, not customers themselves, under applicable terms and conditions.
Celsius also agreed to a US$4.7 billion suspended settlement with the Federal Trade Commission, however, it has said this settlement will not affect any reorganisation plans as it will not be paid until customer assets are returned.
Due to the notorious complexity of the US Chapter 11 bankruptcy process, customers and other creditors who recovered over US$100k before Celsius filed for bankruptcy will need to consider their options if the Plan obtains Court approval on 2 October, and instructing legal counsel to explore potential defenses to clawback claims.
Written by Jake Huang and Steven Pettigrove