Celsius, the crypto company that went bankrupt in June last year, is ready to reopen.
In fact, the bankruptcy proceedings have not yet been fully completed, but appear to be nearing completion.
Summary
- The Chapter 11 process
- The return of funds from crypto company Celsius
- Celsius: NewCo and crypto mining
- Doubts
- Next steps
The Chapter 11 process
After suspending withdrawals in June, the company filed for bankruptcy in July 2022, using the famous US Chapter 11 bankruptcy process.
Chapter 11 does not necessarily involve the liquidation of bankrupt companies’ assets, but allows them to restructure their debts in an attempt to reopen.
So after Celsius filed for bankruptcy, it worked to reopen, and part of the restructuring plan involves just that.
In fact, in July this year, the company submitted a plan to the bankruptcy court that included both the return of funds to creditors and the reopening of the company.
In particular, they were able to agree on two agreements that allow for the return of funds to all customers, thus ending the bankruptcy proceedings and allowing for the reopening of the business.
The return of funds from crypto company Celsius
The key to the resolution of the bankruptcy proceedings is the fact that at the time of the bankruptcy filing, the debts to customers were calculated in fiat currency and not in cryptocurrencies.
For example, in June 2022, the price of bitcoin had fallen below $22,000, and at the time of the bankruptcy it was also below $21,000. In the meantime, the market value of BTC has risen, giving the company the opportunity to revalue the assets it still has in its portfolio.
Thanks to the first of the two settlements, the company promises to repay 105% of the amount claimed by creditors, thus settling the company’s debts. It also settles all claims relating to allegations of fraud and misrepresentation, effectively restoring the situation to pre-bankruptcy levels.
The amounts that customers will receive will be calculated in fiat currency from mid-July market values, so a +5% since then is not much.
Celsius: NewCo and crypto mining
This means that as of today, the company actually has enough cash not only to pay off all its debts, but also to start a new business.
That is why it is putting up to $500 million into a NewCo that will invest it in staking and crypto mining.
In fact, Celsius is already mining, and with this investment, the NewCo will optimise, improve and grow the mining business.
In this way, they will not only return the funds to creditors, but also restore value to shareholders’ shares and resume operations.
Doubts
There are, however, doubts about this initiative.
In fact, before the bankruptcy, Celsius dealt mainly with crypto loans, and not with mining.
The biggest doubt is that they may not be able to mine optimally right away, and may therefore end up losing money again.
However, given that most creditors have agreed to the 105% repayment, it seems difficult that such a plan might not be approved.
It must be said that the bankruptcy court’s approval is still required before operations can begin, although it does not appear that it will oppose this. On the other hand, this kind of restructuring is done in cooperation with the courts, so it is rather unlikely that the court will be opposed.
On the other hand, the company must also safeguard the interests of the shareholders, now that it seems to have succeeded in safeguarding those of the creditors, and a possible reopening would benefit more people involved in the bankruptcy.
Next steps
In theory, NewCo could become operational as soon as the Court gives its final approval to the plan.
The €500 million referred to above should therefore theoretically be ready to be transferred to NewCo as soon as possible.
As far as creditor repayments are concerned, it is assumed that they could start as early as the end of the year, so that this bankruptcy procedure, which started in mid-2022, could be concluded as early as the end of the following year.
This is a rather rare occurrence, made possible by the fact that a large part of the assets owned by Celsius’ customers were actually still in the company’s coffers. In other cases, however, most of the assets had either been misappropriated or squandered, making such a quick recovery impossible.
It is not surprising, however, that 95% of creditors support the plan, as it seems to suit everyone.
There are risks associated with changing the business, but those who invest in this type of business are generally used to taking risks.
