Creditors of bankrupt crypto lending firm Celsius are expressing their dissatisfaction with a reportedly significant reduction in payments compared to what they were initially promised under the bankruptcy plan. This reduction is allegedly due to a rule that limits distributions through the Coinbase exchange to only 100 Celsius corporate accounts. As a result, some creditors are receiving cash instead of the promised cryptocurrencies, resulting in significantly reduced payments. The increase in the value of Bitcoin and Ether since the distribution was agreed upon further exacerbates the disparity between small business creditors and the top 100 business accounts on Celsius.
A creditor in Australia, who wishes to remain anonymous, claimed that they were told by the law firm representing Celsius debtors, Kirkland & Ellis, that they would not receive the original amount owed to them. Instead, they are set to receive $15,741 in cash, 36% less than the market value of the cryptocurrencies they were promised. On the other hand, a top-100 Celsius corporate creditor is expected to receive the full amount of crypto promised. The creditor provided emails between themselves and a representative from Kirkland & Ellis, where the representative acknowledges the frustration caused by the increase in crypto prices but maintains that the cash payment is in accordance with the agreed-upon terms.
Several creditors have sent letters of complaint to United States bankruptcy Judge Martin Glenn, who is overseeing the case. They argue that their payments are being reduced unjustly due to the alleged Coinbase rule, which lacks transparency in the selection process for the 100 corporate accounts that receive crypto distributions. Instead, the rest of the creditors are left with USD checks and wires, which they deem unfair and inequitable.
Another creditor from Hong Kong also expressed their dissatisfaction with being forced to accept US Dollar Distribution instead of the promised crypto. They claim that crypto distribution is permitted in Hong Kong, but for unknown reasons, Celsius chose to distribute the funds in US dollars.
The Celsius bankruptcy plan, which was confirmed by the court on November 9, uses two different sets of crypto prices to determine the amount owed to creditors. The first set of prices is based on the “petition date,” which is the date Celsius filed for bankruptcy (July 13, 2022), while the second set is the “effective date” for distributions (January 31, 2024). The dollar amount owed to creditors is calculated by adding up the petition date value of each cryptocurrency held in their Celsius account. A portion of this amount is paid out in company stock and illiquid asset recovery, while the rest is distributed in cash or crypto.
Most creditors receive their payments in crypto rather than US dollars. The effective date prices are used to determine the amount of BTC and ETH owed to each creditor. The dollar amount owed is divided into two halves, with each half being converted into BTC and ETH based on the effective date prices.
The issue arises for creditors who are not among the top 100 asset holders and are therefore subject to longer delays in receiving their payments. These creditors miss out on gains in the crypto market during the bankruptcy proceedings. For example, a hypothetical creditor holding 1 BTC and 1 ETH would have missed out on significant gains during the ongoing crypto bull market. The creditor who brought attention to this issue referred to it as “special treatment for some” and claimed that creditors never agreed to this arrangement.
Celsius debtors responded to these claims in a document filed with the bankruptcy court. They confirmed that some creditors will not receive payments in cryptocurrency or the cash equivalent based on prevailing prices. They explained that the cryptocurrency owed to these creditors has already been sold, so they have not benefited from the rise in crypto prices and cannot pass on these benefits. The debtors stated that if it is determined that a creditor cannot receive crypto as initially scheduled, the crypto will be sold as close to the expected date of cash distribution as possible, allowing the creditor to receive recent gains. However, this practice does not apply to creditors who have already been scheduled for cash distributions. The document also cited the compliance and onboarding process for corporate accounts as the reason for being unable to obtain a distribution partner for all corporate creditors.
Celsius has recently emerged from bankruptcy and has begun returning over $3 billion to its creditors.