The “crypto contagion” that we discussed in our latest blog post claimed another casualty late in the evening on July 13, 2022, when one of the largest cryptocurrency platforms, Celsius Network LLC and several affiliates (the “Debtors”), filed for chapter 11 relief in the U.S. Bankruptcy Court for the Southern District of New York.1 As we have previously highlighted, these cases are likely to feature issues of first impression that may have a significant precedential impact on crypto companies and their customers.
The Debtors enter bankruptcy “to stabilize [their] business and consummate a comprehensive restructuring transaction that maximizes value for all stakeholders” while continuing to operate throughout the process with a reported $167 million in cash on hand. The Debtors list $5.5 billion in liabilities, with $4.72 billion characterized as “User Liabilities” against $4.31 billion in assets, $1.75 billion of which are “Crypto Assets.” The Debtors assert that they intend to engage with all creditor constituencies to build consensus around a chapter 11 plan, which may include the use of Bitcoin minted by the Celsius Mining platform to “address its current cryptocurrency deficit.” The Debtors also intend to explore asset sales and/or investments from third-party strategic or financial investors to aid in the reorganization.
Bankruptcy Judge Martin Glenn, who was recently assigned the case, will be tasked with deciding any key issues that emerge. Judge Glenn is also presiding over the recently-filed foreign recognition case of Three Arrows Capital, where he just granted an emergency motion allowing court-appointed liquidators to freeze the company’s crypto assets located in the United States. As always, S&K will continue to closely monitor these cases and report on any significant updates.
1 In re Celsius Network LLC, et al., Case No. 22-10964 (Bankr. S.D.N.Y.).
