Under the proposal by Celsius, most creditors would receive a one-time payment of crypto while those with larger claims would get equity in a new company.
Bankrupt crypto lender Celsius Network has chosen NovaWulf Digital Management as the sponsor for its proposed Chapter 11 restructuring plan, which will see the investment advisory firm take over the operations of a new company and most customers estimated to recover up to 70% of their funds.
Celsius presented the plan on Feb. 15 in a filing to the United States Bankruptcy Court for the Southern District of New York. The proposed plan has the support of the Celsius Official Committee of Unsecured Creditors (UCC) — a body representing the interests of Celsius account holders.
The plan sees the creation of a new public platform fully owned by Earn creditors called NewCo with the UCC appointing the majority of the company’s board members. The plan notes the new board will have no “Celsius founder involvement or relationship.”
NovaWulf will also make a direct cash contribution of between $45 million to $55 million to the new firm.
1-Last night Celsius (with UCC support) selected NovaWulf to sponsor a reorganization plan that will distribute liquid crypto to all account holders, as well as create a litigation trust and provide creditors with common equity in a NewCo holding illiquid assets like mining.
— Celsius Official Committee of Unsecured Creditors (@CelsiusUcc) February 15, 2023
In the filing, Celsius said that “the NovaWulf plan provides the best method to distribute the Debtors’ liquid crypto assets and maximize the value of the Debtors’ illiquid assets through a new company run by experienced asset managers.”
The new company will house Celsius’ illiquid assets, mining business and existing loan portfolio with future plans to develop crypto-oriented services.
The key highlights and main points of the proposed plan for NewCo. Source: Stretto
Under the plan, creditors with claims valued $5,000 and below on the petition date will be placed in a “Convenience Class,” receiving “a one-time distribution of liquid crypto” paid in the form of Bitcoin (BTC), Ether (ETH) and USD Coin (USDC).
It’s estimated the option will provide over 85% of Celsius customers with around a 70% recovery of their deposited crypto. Any Earn creditor with a balance over $5,000 can elect to reduce a claim to $5,000 and participate in the class.
Celsius’ Earn creditor distribution plan. Source: Stretto
Those with a claim over $5,000 — or those with a claim of over $1,000 who opt out of the Convenience Class shares — will receive a payment of the residual crypto after the payments to smaller accounts.
In addition, they will receive ownership in NewCo through equity and management share tokens which will pay dividends to holders.
Earn users that hold Celsius (CEL) tokens, a native token used for user rewards that currently trades around $0.50, will be valued and purchased at the initial coin offering (ICO) price of $0.20.
The plan would see “insider CEL token claims,” or those buyers granted early ICO access, “receive no recovery.”
The plan also calls for the creation of a “well-funded litigation trust” to pursue lawsuits against Celsius executives and former CEO Alex Mashinsky.
The proposed plan will need approval from U.S. Bankruptcy Judge Martin Glenn before its enacted.
Six firms placed bids on Celsius crypto assets, including Binance, Bank To The Future, Cumberland DRW and Galaxy Digital from a process that saw Celsius contact “over 130 parties.”
The company filed for Chapter 11 bankruptcy in July 2022, after halting withdrawals citing “extreme market conditions” and rumors of insolvency.
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