Bankruptcy lawyers believe Celsius clients may have to wait years for settlement

Lawyers commenting on Celsius’ recent bankruptcy filing said Reuters that users might face a long and cumbersome process to get their funds back.

“Customers should now buckle up for a bumpy ride as they await clarification on the fate of their money.”

Celsius files for bankruptcy following the repayment of a loan

Celsius announced a pause on withdrawals, exchanges and transfers on June 12, citing “extreme market conditions”. Weeks before the announcement, rumors swirled that the company was facing financial difficulties amid the sharp market sell-off sparked by the Terra scandal.

Large loan repayments had recently given hope that the company was struggling to remain solvent. Between July 2 and July 4, Twitter account @BTCKYLE noted that Celsius had redeemed a total of $270 million on their DeFi positions, suggesting that normal operations would resume shortly.

However, the company filed for Chapter 11 bankruptcy on July 14, thwarting any hopes of returning to normal operations. This type of bankruptcy is known as a “reorganization” and allows the company to remain in business while it restructures its debts.

Celsius said the intention behind the move was to stabilize operations and provide the best path to “emerge…to succeed in the crypto industry.” This added that it filed for bankruptcy in the best interests of stakeholders, including users.

Users are probably facing a long wait

Bankruptcy lawyers say that with “little precedent” for big crypto companies filing Chapter 11, in conjunction with ongoing lawsuits against the company and the complexities of a Chapter 11 filing, the process will be probably long.

Commenting on the situation facing Celsius, a partner at Barnes & Thornburg law firm, James Van Horn said:

“It is unclear, at best, how the bankruptcy code and bankruptcy courts will treat cryptocurrency companies.”

Partner at Davis Wright Tremaine, Stephen Gannon called the process “a three-dimensional failure” and, of the initial stage of developing a restructuring plan, Gannon said it should take at least six months .

Bankruptcies, in general, tend to prioritize secured creditors, unsecured creditors, followed by shareholders.

Partner in corporate restructuring Daniel Gwen noted that Celsius views customer deposits as a transfer of ownership, not a custodial agreement similar to depositing money in a bank. Gwen added that this arrangement would categorize users as unsecured creditors.

“Celsius pointed out in its closing arguments that the customers transferred ownership of the crypto assets to Celsius, making those customers unsecured creditors.”

A document accompanying the bankruptcy filing showed the company held $4.3 billion in assets as of July 14, while its liabilities stood at $5.5 billion, a shortfall of $1.2 billion. dollars.