Lawyers for Celsius Network are seeking to fold a UK affiliate into the company, a move that could strengthen the hand of the firm’s retail customers in their battle with institutional shareholders over the bitcoin mining business and other assets housed in the affiliate.
The cryptocurrency lender argued that its advisers have been struggling to reconcile the records of the UK affiliate, called Celsius Network, and Hoboken, NJ-based Celsius Network, and believes it makes more sense to collapse the two affiliates into one unit for the purpose of assessing creditors’ claims against both, according to papers filed on 1 May with the US Bankruptcy Court in New York. Celsius also said it believes that a review of transactions between the two sides would show that the UK unit owes the US side billions of dollars.
READ ‘Grow up,’ ex-Celsius directors warn crypto as BlockFi joins bankruptcy club
The move comes after Judge Martin Glenn ruled in March that preferred shareholders have direct claims on the crypto firm’s mining business, while customers who lost money when the firm collapsed into bankruptcy don’t have the same claims under their user agreements. However, Judge Glenn left the door open for customers to assert other claims over the UK affiliate’s assets unrelated to their contract terms.
Unsecured creditors such as the Celsius customers typically have superior claims over equity holders under Chapter 11.
Preferred shareholders including investment firm WestCap Management and Canadian pension fund Caisse de dépôt et placement du Québec have argued that they have direct claims over the UK affiliate’s assets, including its bitcoin mining business and $44m in proceeds from the sale of a crypto services subsidiary. The mining business still loses money, but Celsius said it expects it to reach profitability this year.
Celsius had hastily moved its customer-facing business from the UK to the US in 2021 following pressure from British regulators, and the records on transactions and agreements between the UK unit and Celsius Network are incomplete and ambiguous, 1 May’s court papers said. While the company’s advisers have been working to reconcile the records of transactions between the two units, they haven’t been able to complete the process after months of work, according to the filings.
A sale process that started last week for Celsius’s assets, including its customers’ crypto, will also determine how much customers recover. One of the bidders, NovaWulf Digital Management, has proposed giving users back some of their crypto as well as equity in the mining business.
Celsius filed for bankruptcy protection in July 2022, with $5.5bn of liabilities, including more than $4.7bn owed to its users, against $4.3bn of total assets.
Judge Glenn will hear arguments in July on whether to combine the US and UK affiliates.
Write to Soma Biswas at [email protected]
This article was published by The Wall Street Journal, part of Dow Jones
