March 31, 2023 – The Debtors filed a Chapter 11 Plan of Reorganization [Docket No. 2358] and an accompanying "Statement Regarding Plan Process" (the "Statement") drafted by Debtors' counsel, Kirkland & Ellis LLP ("Kirkland") [Docket Nos. 2358 and 2359, respectively]. Filing of a "voluminous" Disclosure Statement is to be deferred for now in favor of the Statement; with the Debtors committing to file an actual Disclosure Statement by April 12th and to hold a hearing to approve it for solicitation purposes by March 17th.
Famous/infamous for filing place holder plans, Kirkland is refining the technique in these cases in respect of what is a place holder Disclosure Statement, an effort to prep stakeholders for what is to come (in selected/selective areas) while demonstrably NOT actually filing the document which remains subject to negotiation, including as to the detail of an "agreement in principle on the terms of a revised treatment for retail borrowers under the Plan."
What that means, and we borrow Kirkland's own words here, is that the "Statement" does not in their view provide "information of a kind, and in sufficient detail, that would enable a hypothetical investor to make an informed judgment about the plan…" So why file the Plan and Statement, but not the Disclosure Statement (with a committment to file the latter just two weeks later)?
Probably in an effort to (i) lock in what has been achieved to date (eg, inter alia (a) NovaWulf's Plan Sponsor role, albeit with now reduced bid protections, and (b) a settement that will allow Custody Account Holders to elect to receive 72.5% of the cryptocurrency in their Custody Accounts), (ii) put further pressure on parties negotiating outstanding issues, (iii) build a collective understanding of core issues amongst stakeholders without the confusing static of the full, voluminous Disclosure Statement, and (iv) calm "pro se creditors" of various crypto stripes (Kirkland's term, so much for plain English) inundating zoom meetings/Court hearings with their visceral unhappiness.
Kirkland provides: "The disclosure statement….will be voluminous. And because of the complexity of these chapter 11 cases and the proposed plan transaction, the Debtors are continuing to draft and refine a disclosure statement, so that the version that is filed provides adequate information regarding the Plan to account holders and other stakeholders….As a result, the Debtors will not be filing the Disclosure Statement today, but are filing this statement (the 'Statement') to provide an overview of the Plan, an update on the timing of the process for the Disclosure Statement, and to preview the information that will be contained in the Disclosure Statement….In addition, the Disclosure Statement will include a 'Liquidation Analysis' and other financial summaries that will demonstrate that the transactions contemplated by the Plan are better than a chapter 7 liquidation and are feasible. Finally, the Debtors anticipate…the Disclosure Statement will also include an exhibit containing "Frequently Asked Questions" that will include more questions and answers about the Plan and Disclosure Statement to assist all creditors, including pro se creditors, in understanding the transactions contemplated by the Plan….Prior to the Disclosure Statement being filed, the Debtors want to provide some guidance to their stakeholders on how to read the Plan….Moreover, almost inevitably, the Plan will be changed in some regard prior to the hearing on the Disclosure Statement. This Statement only reflects the Plan on file as of the date of this Statement. Once the Debtors file the Disclosure Statement, stakeholders should refer to the Disclosure Statement, rather than this Statement."
So what is it that Kirkland is trying to communicate to "pro se creditors" now as opposed to two weeks from now?
The Statement continues: The "Plan provides for (a) the distribution of a significant amount of the Debtors’ liquid cryptocurrency to account holders on the effective date of the plan and (b) creation of a new public-reporting, regulatorily compliant entity ('NewCo') that will manage the Debtors’ illiquid assets (including the mining business, retail and institutional loan portfolios, staked cryptocurrency, and other alternative investments) and whose common equity will be 100% owned by creditors at emergence. NewCo will be predicated on transparency and governed by a board of directors, a majority of which will be appointed by creditors. Certain claims and causes of action of the Debtors will be preserved and pursued by a litigation administrator for the benefit of General Earn Creditors (and those other creditors that receive the treatment provided to General Earn Creditors)."
On Convenience Claims, the Statement continues: "A 'Convenience Claim' is any aggregate Account Holder claim (excluding Custody Claims and Retail Borrower Deposit Claims) valued greater than $10 but less than or equal to $5,000. Each holder of a Convenience Claim will receive Liquid Cryptocurrency in an amount sufficient to provide a 70% recovery on such claim, with such claim calculated in accordance with the Distribution Valuation Table. Holders of Convenience Claims valued below $5,000 but at or above $1,000 can opt out of the Convenience Class and receive Earn Claim treatment (referred to in the Plan as “General Earn Claim” treatment to clarify the exclusion of Convenience Claims).
On "General Earn Claims": "Each holder of a General Earn Claim (i.e. an Earn Claim that does not elect to be treated as a Convenience Claim) and any other Account Holder claim that receives the same treatment as a General Earn Claim will receive its Pro Rata share of:
- the Liquid Cryptocurrency Distribution Amount;
- Equity Share Tokens and Management Share Tokens reflecting common and preferred equity interests in the NewCo; and
- proceeds from the litigation of “Recovery Causes of Action,” which will include (but are not limited to) the causes of action described in the draft complaint attached as Exhibit 2 to the UCC Claims Stipulation Motion.
On "Custody Claims": "Withdrawable Custody Claims: Custody Claims that the Court previously authorized for withdrawal under the Custody Withdrawal Order (Pure Custody Claims and Eligible Transferred Custody Claims) may continue to be withdrawn in full pursuant to the Custody Withdrawal Order and are accordingly unimpaired (and not entitled to vote) under the Plan….General Custody Claims: All other Holders of Custody Claims ('General Custody Claims') will have the opportunity to either (a) opt into the Custody Settlement through the Plan or (b) have the Cryptocurrency associated with their General Custody Claim reserved in a segregated wallet pending resolution of any Causes of Action (including Avoidance Actions) against such Account Holder. Each Holder of a General Custody Claim that opts into the Custody Settlement will receive a 72.5% recovery on their General Custody Claim and a release of all Causes of Action against them. They will forfeit any right to the remaining 27.5% of their Custody Claim. Any Custody Settlement Participant that is not an Excluded Party and that has Withdrawal Preference Exposure11 under $100,000 will receive a 100% recovery as a result of the Account Holder Avoidance Action Release provided under the Account Holder Avoidance Action Settlement, described in Article IV.B.3 of the Plan.
On "Withhold Claims": The treatment of Withhold Claims depends on how the Class of Withhold Claims votes on the Plan. If the Class of Withhold Claim votes to accept the Plan, each holder of a Withhold Claim will receive 15% of their Withhold Claim through a distribution of in-kind Cryptocurrency, and the remaining 85% of their Withhold Claim will be treated as an General Earn Claim (each valued as of the Petition Date). If the Class of Withhold Claims votes to reject the Plan, each holder of a Withhold Claim will have 100% of their Withhold Claim treated as an Earn Claim."
On "Borrow Program Claims": "Holders of 'Retail Borrower Deposit Claims' (previously referred to as 'Borrow Claims') that (i) vote in favor of the Plan, (ii) elect to opt into the Retail Borrower Deposit Claim Settlement, (iii) are not Excluded Parties, and (iv) hold Retail Borrower Deposit Claims valued over $5,000 (not including any such claims on account of CEL Tokens, FTT Tokens, or LUNC Tokens), will have the opportunity to enter into a Retail Borrower Deposit Claim Settlement Agreement that will allow the Electing Retail Borrower to ultimately recover up to the entire amount of such Account Holder’s Retail Borrower Deposit Claim over a six-year period. All other holders of Retail Borrower Deposit Claims (either by election or default) will have such Retail Borrower Deposit Claims set off against their outstanding obligations to the Debtors and have any remaining Retail Borrower Deposit Claims treated as General Earn Claims."
The substantive element of the Statement concludes with: "As announced at the hearing on March 23, 2023, the Debtors, the Committee, the Plan Sponsor [ie NovaWulf], and the Borrow Ad Hoc Group have reached an agreement in principle on the terms of a revised treatment for retail borrowers under the Plan. That settlement is currently being documented. Most notably, it will include the revisions to Treatment A that provide additional flexibility and safeguards for retail borrowers who are electing the structured settlement. Specifically, the revised terms of the Retail Borrower Deposit Claims Settlement provide for, among other things:
- Electing Retail Borrowers to receive up to 100% of their Retail Borrower Deposit Claim after the conclusion of the six-year term of the proposed structured settlement;
- a prepayment schedule that allows Electing Retail Borrowers to prepay, for a fee, Retail Advance Obligations beginning in year three of the term of the structured settlement;
- revised interest-rate tiers based on a Retail Advance Obligation’s “Obligation to Value” ratio;
- a Cryptocurrency Settlement Agreement that provides Electing Retail Borrowers who have BTC denominated Deposit Claims the ability, for a fee to swap the Deposit Claim Assets supporting such Retail Borrower’s Settlement Obligation into BTC instead of ETH; and
- safeguards, including investment guidelines, monthly financial reporting, and restrictions on NewCo Advance Settlement Company’s ability to incur funded debt or make dividend payments.
The parties are working to document the Retail Borrower Deposit Claims Settlement, and the specifics will be included in the Disclosure Statement and in a revised Plan to be filed with the Disclosure Statement."
Case Status
On July 13, 2022, Celsius Network Limited and seven affiliated Debtors (“Celsius” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 22-10964 (Judge Martin Glenn). The Debtors, which own and operate a P2P lending platform allowing users to borrow and lend cryptocurrencies, noted estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn after the Company informed users that it was freezing all withdrawals, swaps and transfers between accounts because of “extreme market volatility.”
On November 2, 2022, the Court issued an order approving proposed bidding procedures for the sale of substantially all of the Debtors’ assets and authorizing the Debtors to enter into stalking horse arrangements with one or more bidders [Docket No. 1272].
On March 1, 2023, the Debtors notified the Court that NovaWulf has been selected as the Stalking Horse Bidder for substantially all of the Debtors’ assets [Docket No. 2150]. The Debtors also filed a motion requesting Court approval of bid protections as part of the NovaWulf agreement, including a $5.0mn break-up fee and a $15.0mn expense reimbursement [Docket No. 2151]. The NovaWulf Plan Sponsor Agreement is attached to the motion at Exhibit B.
Plan Overview
The Statement [Docket No. 2359] provides, “Prior to the Disclosure Statement being filed, the Debtors want to provide some guidance to their stakeholders on how to read the Plan. The Plan is a contract between the Debtors and its creditors and other stakeholders. It is a complex legal document and should be read in its entirety in detail. For the avoidance of doubt, this Statement is intended to provide a plain English summary of the Plan. To the extent there is a discrepancy between this Statement and the Plan, parties should rely on the Plan. Moreover, almost inevitably, the Plan will be changed in some regard prior to the hearing on the Disclosure Statement. This Statement only reflects the Plan on file as of the date of this Statement. Once the Debtors file the Disclosure Statement, stakeholders should refer to the Disclosure Statement, rather than this Statement.
The Plan provides for (a) the distribution of a significant amount of the Debtors’ liquid cryptocurrency to account holders on the effective date of the plan and (b) creation of a new public-reporting, regulatorily compliant entity (‘NewCo’) that will manage the Debtors’ illiquid assets (including the mining business, retail and institutional loan portfolios, staked cryptocurrency, and other alternative investments) and whose common equity will be 100% owned by creditors at emergence. NewCo will be predicated on transparency and governed by a board of directors, a majority of which will be appointed by creditors. Certain claims and causes of action of the Debtors will be preserved and pursued by a litigation administrator for the benefit of General Earn Creditors (and those other creditors that receive the treatment provided to General Earn Creditors).”
The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement):
- Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 2 (“Retail Borrower Deposit Claims”) is impaired and entitled to vote on the Plan. Treatment: Each Holder shall receive the Retail Borrower Deposit Claim Settlement Treatment. All other Holders of Allowed Retail Borrower Deposit Claims shall receive the Set Off Treatment, whether by election or default. Notwithstanding the foregoing, in the event that the Debtors pursue the Orderly Wind Down, each Holder of an Allowed Retail Borrower Deposit Claim shall receive the Set Off Treatment, regardless of whether such Holder made a Retail Borrower Deposit Claim Settlement Election and satisfied the Retail Borrower Deposit Claim Settlement Conditions.
- Class 3 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 4 (“Convenience Claims”) is impaired and entitled to vote on the Plan. Each holder shall receive Liquid Cryptocurrency in an amount sufficient to provide a 70% recovery (calculated in accordance with the Distribution Valuation Table) on account of such Convenience Claim.
- Class 5 (“General Earn Claims”) is impaired and entitled to vote on the Plan. Each holder shall receive its Pro Rata share of (a) the Liquid Cryptocurrency Distribution Amount, (b) ESTs, (c) MSTs, and (d) Litigation Proceeds. In the event that the Debtors pursue the Orderly Wind Down, each Holder of an Allowed General Earn Claim shall receive its Pro Rata share of (a) the Liquid Cryptocurrency Distribution Amount, (b) Litigation Proceeds, and (c) the Illiquid Recovery Rights, without regard to General Earn Claim Distribution Mix Elections.
- Class 6A (“General Custody Claims”) is impaired and entitled to vote on the Plan. Treatment: (i) For Holders of Allowed General Custody Claims that did not elect to be Custody Settlement Participants in accordance with the Custody Settlement Order: Each such Holder of an Allowed General Custody Claim shall have the opportunity to elect, through its Ballot in accordance with the procedures set forth in the Disclosure Statement, one of two treatments:
Treatment A: (a) a distribution of Cryptocurrency equal to 72.5% of the amount of such Allowed General Custody Claim on the Effective Date in-kind and (b) a full and final release of all Causes of Action, including Avoidance Actions, with respect to such Allowed General Custody Claim; provided that Custody Settlement Participants that (1) are not Excluded Parties and (2) have Withdrawal Preference Exposure under $100,000 shall receive a 100% recovery under Treatment A, as provided in Article IV.B.3.
Treatment B: The Cryptocurrency associated with the applicable Allowed General Custody Claim will be transferred to a segregated wallet held by the Post-Effective Date Debtors and shall be subject to all Avoidance Actions and other claims with respect to such Allowed General Custody Claim. The Litigation Administrator(s) shall have 180 days to bring any Avoidance Action or other claim against such Account Holder with respect to such assets, such time period subject to extension by the Bankruptcy Court following notice and a hearing. To the extent no such action is brought and no settlement is reached in the time period set forth in the immediately preceding sentence (as extended), such assets shall be released to the Holder of the applicable Allowed General Custody Claim. Any such Allowed General Custody Claim will be subject to the ADR Procedures.
(ii) For Custody Settlement Participants: Each such Holder of an Allowed General Custody Claim shall receive a distribution on the Effective Date equal to the amount set forth in Treatment A, above, minus any amounts already received under such settlement; provided that any votes cast by such Holder on account of such General Custody Claim, whether to accept or reject the Plan, shall be deemed votes to accept the Plan consistent with the terms of the Custody Settlement Motion and any such Holder that abstains from voting on the Plan shall also be deemed to accept the Plan on account of such General Custody Claim consistent with the terms of the Custody Settlement Motion; provided, further, that Custody Settlement Participants that (1) are not Excluded Parties and (2) have Withdrawal Preference Exposure under $100,000 shall receive a 100% recovery, as provided in Article IV.B.3.
- Class 6B (“Withdrawable Custody Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 7 (“Withhold Claims”) is impaired and entitled to vote on the Plan. Treatment: (i) Each Holder of an Allowed Withhold Claim that is not an Excluded Party shall receive the following treatment, as applicable:
Treatment A: If Class 7 votes to accept the Plan described herein, such Holders of Allowed Withhold Claims shall receive (a) a distribution of Cryptocurrency equal to 15% of the value of such Holders Withhold Distribution Claim, calculated in accordance with the Conversion Procedure, and (b) the remaining 85% of the value of such Holder’s Allowed Withhold Distribution Claim shall be provided the same treatment as a General Earn Claim.
Treatment B: If Class 7 does not vote to accept the Plan described herein, such Allowed Withhold Claims shall be provided the same treatment as Holders of General Earn Claims.
(ii) For the avoidance of doubt, any former Holder of an Allowed Withhold Claim that participated in the Withhold Settlement no longer has a Withhold Claim and has an Earn Claim in accordance with the terms of the Withhold Settlement.
- Class 8 (“Unsecured Loan Claims”) is impaired and entitled to vote on the Plan. Each holder shall receive a combination of (i) Cash, (ii) ESTs, and (iii) MSTs sufficient to provide a recovery at the midpoint of the Class 5 (General Earn Claim) recovery set forth in the Disclosure Statement.
- Class 9 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. Each holder shall receive a combination of (i) Cash, (ii) ESTs, and (iii) MSTs sufficient to provide a recovery at the midpoint of the Class 5 (General Earn Claim) recovery set forth in the Disclosure Statement.
- Class 10 (“De Minimis Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 11 (“Intercompany Claims”) is impaired/ unimpaired, deemed to accept/reject and not entitled to vote on the Plan.
- Class 12 (“Intercompany Interests”) is impaired/ unimpaired, deemed to accept/reject and not entitled to vote on the Plan.
- Class 13(“Preferred Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 14 (“Common Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 15 (“Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 16 (“Equitably Subordinated Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
Proposed Key Dates (Docket No. 2359)
- Deadline for Debtors to File Disclosure Statement: April 12, 2023
- Deadline to Object to Approval of the Disclosure Statement: May 10, 2023
- Disclosure Statement Hearing: May 17, 2023
- Voting on the Plan: To begin after the Court approves the Disclosure Statement
General Background
Petition Date Perspective
In a press release announcing the filing, Celsius advised that "it initiated voluntary Chapter 11 proceedings to provide the Company with the opportunity to stabilize its business and consummate a comprehensive restructuring transaction that maximizes value for all stakeholders…Celsius has $167 million in cash on hand, which will provide ample liquidity to support certain operations during the restructuring process….Celsius is not requesting authority to allow customer withdrawals at this time. Customer claims will be addressed through the Chapter 11 process."
Members of the Special Committee of the Board of Directors commented: “Today’s filing follows the difficult but necessary decision by Celsius last month to pause withdrawals, swaps and transfers on its platform to stabilize its business and protect its customers. Without a pause, the acceleration of withdrawals would have allowed certain customers — those who were first to act — to be paid in full while leaving others behind to wait for Celsius to harvest value from illiquid or longer-term asset deployment activities before they receive a recovery.”
Alex Mashinsky, the Debtors' Co-Founder and chief executive officer, commented further: “This is the right decision for our community and company. We have a strong and experienced team in place to lead Celsius through this process. I am confident that when we look back at the history of Celsius, we will see this as a defining moment, where acting with resolve and confidence served the community and strengthened the future of the company.”
The Debtors have also released a "Community Update" and YouTube video which, although perfectly valid forms of communication, reflect simplistic and optimistic messaging pretty clearly intended to calm the crypto investing community and mitigate selling efforts which drive what Chapter 11 crypto filer Voyager referred to in its own bankruptcy filings as a "death spiral." For a general sense of the messaging, the video informs Celsius's "investor community," (yes, these guys)
that "the Plan of Reorganization will be negotiated between Celsius and, among others, a committee of unsecured creditors including YOU [emphasis in original], our customers" listing companies that have "successfully reorganized under Chapter 11 and emerged stronger than before."
Unlikely a coincidence that these communications are put out before the hard boiled facts as to why the Debtors are seeking bankruptcy protection get filed with the Court. As is increasingly common in first day filings, the declaration in support of those filings (supposedly filed contemporaneously and incorporated by reference, including in respect of defined terms) which contains an obligatory "Events Leading to the Chapter 11 Filings…" was not filed on the Petition Date, but rather at approximately 2 p.m. the following day [Docket No. 23, the "Mashinsky Declaration"]. The delay, often now stretching through an entire business day, effectively renders each of the first day motions incorporated in the declaration…incomplete. When are Courts going to call filers out on this practice? While awaiting the "Mashinsky Declaration," about 10 first day motions were filed.
Goals of the Chapter 11 Filings
According to the Mashinsky Declaration (defined below), "These chapter 11 cases will provide a 'breathing spell' for the Debtors to negotiate and implement a plan that will maximize the value of its business and generate meaningful recoveries to our stakeholders as quickly as possible….
The Debtors are aiming to file a plan that will provide users with choices and enable Celsius to return to normal operations. To fund plan recoveries, the Company may sell one or more of its assets and/or consider an investment from third-party strategic or financial investors in exchange for equity in a 'reorganized' Celsius."
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Mashinsky Declaration”), Alex Mashinsky, the Debtors’ chief executive officer, detailed the events leading to Celsius’s Chapter 11 filing. The Mashinsky Declaration provides: “Celsius’ early success was not without its hiccups. The amount of digital assets on the Company’s platform grew faster than the Company was prepared to deploy. As a result, the Company made what, in hindsight, proved to be certain poor asset deployment decisions [Mashinsky provides no insight into these decisions]. Some of these deployment activities took time to unwind, and left the Company with disproportional liabilities when measured against the unprecedented market declines.
The Company also suffered other unanticipated losses. In 2021 and 2022, the Company had started making significant changes to its business model to address these losses, including reducing rewards rates and introduction of user fees. In the midst of the Company’s efforts to right-size those liabilities, unanticipated global events put a strain on the Company’s activities. Among other factors, the lingering effects of the COVID-19 pandemic, coupled with rampant inflation and the adverse effects of the war in the Ukraine on the world economy, contributed to a massive sell-off in traditional assets in 2022.
The crypto market is not immune to these macroeconomic trends, as it also experienced extreme market volatility in 2022, particularly in the last three months. Several negative events in the crypto space, including the implosion of Terra LUNA ('Luna') and its TerraUSD (UST) stablecoin ('UST'), accelerated the onset of a 'crypto winter' and an industry-wide sell-off in 2022.
The onset of the 'crypto winter' combined with the well-publicized collapse of Luna and the failure of several crypto funds/exchanges led to growing industry-wide reluctance to do business with companies, such as Celsius, that held crypto assets. This reluctance was exacerbated by a series of negative media and social media comments about Celsius, a number of which were unsupported and misleading. As a result of all of these factors, users began withdrawing crypto from Celsius’ platform in large amounts and at a rapid pace.
The Celsius business model is centered on deploying digital assets to generate income for Celsius and its operations and growth. Some of Celsius’ crypto is tied up in long term and illiquid crypto deployment activities; some of Celsius’ crypto assets have been loaned to third parties; and some of Celsius’ crypto assets have been pledged in support of borrowings or sold to generate cash used to acquire Bitcoin mining equipment and the GK8 storage business.
Because of the variety of asset deployment strategies the Company engaged in, including the terms and length of time those strategies 'lock' the assets, and due to the drop in value of digital assets, Celsius was unable to both meet user withdrawals and provide additional collateral to support its obligations. This left Celsius to deal with an unexpected and rapid 'run on the bank.' In an effort to stabilize its business and protect its users, on June 12, 2022 (the 'Pause Date'), Celsius decided to pause all withdrawals, swaps, and transfers on its platform (the 'Pause').
Concurrently with this decision, the Company decided to limit its engagement in asset deployment, as further explained herein, to conserve its remaining assets. The Pause was intended to prevent certain users — those who were the first to act — from being paid in full while leaving other users behind to wait for Celsius to harvest value from illiquid or longer-term asset deployment activities before they received a recovery.
In connection with the Pause, Celsius’ management began to explore immediate potential strategic solutions at a much quicker pace than they had considered previously. On or about June 19, 2022, Celsius retained Centerview Partners LLC ('Centerview'), as financial advisor and investment banker, and Alvarez & Marsal North America, LLC ('A&M'), as restructuring advisor to advise on potential transactions. On or about June 28, 2022, Celsius retained Kirkland & Ellis LLP ('Kirkland') as restructuring counsel.
Celsius has engaged and is continuing to engage in discussions with certain third parties regarding potential sources of new liquidity. Discussions with these third parties, however, all suggested that an in-court process would be necessary to yield the most value-maximizing path forward and to allow Celsius to return value to users in a fair and transparent manner. To date, Celsius has closed or unwound nearly all of its outstanding DeFi and other counterparty loans to bring its collateral back under its control."
KeyFi Litigation
The Mashinsky Declaration further states, "On July 7, 2022, KeyFi, Inc. ('KeyFi') filed a complaint in the Supreme Court of the State of New York, County of New York against CNL and Celsius KeyFi LLC (the 'KeyFi Complaint') alleging five different causes of action asserting breach of contract, negligent misrepresentation and fraud claims and demanding an accounting. The KeyFi Complaint was filed in response to an ongoing dispute with KeyFi and its chief executive officer and is one example of the way in which others are attempting to generate distrust among the Company’s users and the general public.
The Company strongly disagrees with the allegations raised in the KeyFi Complaint and intends to vigorously defend itself."
New Directors
The Petition Date press release states that the Debtors' new directors include:
David Barse is the Founder and Chief Executive Officer of XOUT Capital, an index company, and DMB Holdings, a private family office. Mr. Barse was formerly the CEO of Third Avenue Management for 25 years, a pioneer in fundamental, bottom-up deep value and distressed investing.
Alan Carr is an investment professional with over 25 years of experience building businesses, leading complex restructurings and protecting and creating value for stakeholders. Mr. Carr is a Founder and the Managing Member of Drivetrain, LLC, a professional fiduciary services firm.
Prepetition Indebtedness
The Debtors do not have any long-term or funded debt. The Debtors use DeFi loans to finance their operations, which are overcollateralized loans supported by the Company’s digital assets and governed by smart contracts. As of the Petition Date, the Company has unwound nearly all of its DeFi loans and the FTX loan, with only one loan remaining in an amount of approximately $3.2 million collateralized by $6.6 million in digital assets.
The majority of the Debtors’ liabilities relate to user accounts. The Debtors have approximately 1.7 million registered users, including approximately 300,000 active users with account balances greater than $100. As of the Petition Date, the Debtors have approximately $130 million in cash on hand.
About the Debtors
According to the Debtors: “Built on the belief that financial services should only do what is in the best interest of the customers and community, Celsius is a blockchain-based platform where membership provides access to curated financial services that are not available through traditional financial institutions."
Corporate Structure Chart
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The post Celsius Network LLC – Cryptocurrency P2P Lending Platform Files a Plan of Reorganization; Balks at Filing “Voluminous” Disclosure Statement in Favor of “Statement Regarding Plan Process” That Preps Crypto Stakeholders for Anticipated Recoveries appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.