Celsius users consider legal challenge to reorganization plan

A group of creditors from the bankrupt crypto lender Celsius is looking into legal options to challenge the company’s reorganization plan, which they claim unfairly favors certain creditors.

The plan offers diminished recoveries for customers with Loan accounts, who now seek to recover funds used as collateral on the defunct platform, according to sources cited by The Block. These creditors are consulting with lawyers to appeal the plan, though they face strict deadlines under the Bankruptcy Code, typically 14 days after a judgment or order.

The court-approved restructuring plan, which came more than a year after Celsius declared bankruptcy in July 2022, has led to payouts that fell short of some creditors’ expectations.

Loan account holders, in particular, received less than 30% of what they claimed, prompting them to explore legal challenges. They argue that the plan did not treat all creditor groups equally, specifically comparing the treatment of Celsius Earn users and Celsius Loan customers. Earn users reportedly received their payouts earlier and recovered more than Loan users.

At this stage, the Celsius Loan creditors are still in the preliminary phase of exploring their legal options and haven’t set a specific timeline for any potential legal challenges. Yet, major Loan creditors are reportedly ready to fund any legal actions that may arise.

This challenge comes at a time when digital asset prices are seeing a revival, leading to questions about the actual value of the creditors’ crypto holdings and how these should be returned.

Chief Judge Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York approved Celsius’ restructuring plan in November, after the lender declared bankruptcy in July 2022.

The Celsius bankruptcy plan uses different crypto prices to determine creditor payments. While most creditors are to be paid in crypto rather than U.S. dollars, the alleged Coinbase rule has resulted in disparities in payments. The plan’s reliance on “petition date” and “effective date” prices further complicates the payment calculations.