Although Celsius has declared bankruptcy, legal experts believe it may take a while to satisfy customer claims. The situation is further complicated by the lack of clear legal precedents for those interested.
Celsius may list some of its customers as unsecured creditors, bringing a fresh round of legal action. The likelihood of Celsius’ creditors retrieving their monies from the exchange soon is bleak, and parties are urged to prepare for a protracted legal battle.
Celsius stopped accepting withdrawals last month, citing poor market conditions, it shocked the cryptocurrency community. Following the action, the company filed for Chapter 11 bankruptcy in New York, which uncovered a $1.2 billion balance sheet imbalance and more than 100,000 creditors.
According to six bankruptcy professionals, settling the troubled firm’s creditors would be difficult and take years to complete. Voyager and Three Arrows Capital, two other cryptocurrency companies, have also filed for Chapter 11 bankruptcy to “reorganize” their company operations, obligations, and assets.
No Examples to Model After
The lack of previous judicial precedents to refer to is one of the factors contributing to the projected delay in court. The treatment of cryptocurrency enterprises by the bankruptcy legislation and courts is unknown, Barnes & Thornburg partner James Van Horn told reporters.
While a crypto exchange like Mt. Gox had a challenging bankruptcy process, the courts have few precedents for a crypto lender like Celsius. Stephen Gannon of Davis Wright Tremaine compared the oddity of the case to playing three-dimensional chess.
Given the complexity, “it will probably take at least six months to design a plan to emerge from bankruptcy,” said Gannon.
The way Celsius has categorized its creditors is another aspect that can cause the process to be prolonged. According to rumors, clients may be classified as “unsecured creditors,” Van Horn claims that members in this category “have no earmarked rights to any funds or anything.” This can cause a wave of litigation, which might dash any hopes for a speedy resolution.
Individual Investors Are Celsius’s Least Important Clients
Individual investors are worried that their interests will be put last in the hierarchy while larger creditors will be given preference. Following the project’s failure, Martin Jabou, an investor who invested $45,000 of his assets in Celsius, is left with nothing.
We’ll probably be last on the list, he predicted. “With all my other debts, I have no idea how I will pay my rent or auto loan.”
Since Celsius’s collapse, significant attention has focused on investor protection in the cryptocurrency market. The Federal Deposit Insurance Corporation insures brokerage accounts up to $500,000 and deposits in U.S. banks up to $250,000.
Such safeguards are uncommon in the crypto world, but tightening restrictions and the harsh lessons from Celsius may change that.