Celsius Says New Customer Deal Doesn't Break Ch. 11 Plan

Defunct cryptocurrency platform Celsius Network asked a New York bankruptcy judge Thursday to approve a deal with ex-corporate customers who complained they didn't receive the crypto they were due, saying the settlement does not change its Chapter 11 plan but fulfills it.

Counsel for Celsius asked U.S. Bankruptcy Judge Martin Glenn to reject the U.S. Trustee's Office's argument that the proposal to pay crypto or cash to about 1,800 creditors can't be allowed because it changes the terms of a Chapter 11 plan approved by the court 10 months ago.

"That is implementing the terms of the plan and complying with the terms of the plan," Celsius counsel Christopher Koenig said.

Celsius filed for Chapter 11 in July 2022, a month after freezing $4.7 billion in customer accounts as the crypto industry fell into turmoil.

In November 2023, Judge Glenn approved a Chapter 11 plan giving customers the option of receiving a pro rata share of the company's remaining crypto or a cash distribution. Several firms, including cryptocurrency platform Coinbase, were retained to handle the distributions.

Dozens of customers complained to the court that they had not received the crypto they had requested. Celsius told Judge Glenn that after the plan was confirmed, Coinbase stated it could only distribute crypto to 100 of Celsius' approximately 1,900 corporate customers. Judge Glenn expressed concern that the change had not been reported to creditors or the court and ordered the parties to resolve the issue.

The parties entered mediation in August, and at Thursday's hearing, Koenig said that after two days of talks with customers, Coinbase and others produced a settlement allowing all the corporate customers to take either a 58% return in crypto — the same recovery given to individual customers under the plan — or an equivalent in cash.

He said the cash option was for parties that did not want to wait for their distribution to clear the compliance and regulatory hurdles for crypto distribution to corporations.

"We do expect cash distributions will be faster," he said.

Creditors that have already received cash distributions will have the amount of the first distribution deducted from the distribution they receive under the deal.

Koeing said Coinbase also agreed to process any transaction before its contract expires in November, even if the processing stretches past the end of the contract.

The deal faced an objection from the U.S. Trustee's Office, which argued that the plan has already been substantially implemented and distribution changes cannot be allowed now.

The argument faced questions from Judge Glenn.

"This implements what I understand the plan contemplated and called for," he said.

U.S. Trustee counsel Shara Cornell argued that the deal includes $1.5 million in legal fees for a nonfiduciary, ad hoc group of corporate customers and that the funds must be drawn from a disputed claim reserve established by the plan.

Koeing argued that post-confirmation legal fees do not have to meet the same standards as preconfirmation ones. The reserve fund — about $300 million of its original $500 million — is not earmarked for any particular claim.

"The reserve is built for contingencies like this one," Koenig said.

Judge Glenn said he would take the matter under submission.

Celsius is represented by Joshua A. Sussberg, Patrick J. Nash Jr., Ross M. Kwasteniet, Christopher S. Koenig and Dan Latona of Kirkland & Ellis LLP.

The ad hoc corporate creditors group is represented by Joseph E. Sarachek of the Sarachek Law Firm.

Coinbase is represented by Thomas S. Kessler of Cleary Gottlieb Steen & Hamilton LLP.  

The U.S. Trustee is represented in-house by Shara Cornell and Mark Bruh.

The case is In re: Celsius Network LLC et al., case number 1:22-bk-10964, in the U.S. Bankruptcy Court for the Southern District of New York. 

–Editing by Jay Jackson Jr. and Kelly Duncan.