Celsius had decided to send the entity to bankruptcy status, but legal specialists explained that settling customers could be a long and drawn-out procedure. The absence of clear-cut legal precedents further brings a more complex situation for the interested parties.
The prospects of Celsius’ creditors seeing back their funds from the exchange soon are looking minimal, with parties advised to brace themselves for a tense fight in court.
Celsius sent shockwaves through the crypto world when it stopped withdrawals last month, highlighting unfavorable market conditions. The move came along with a Chapter 11 bankruptcy filing in New York unveiling a $1.2 billion deficit in its balance sheet and over 100,000 creditors.
Six lawyers specializing in bankruptcy matters highlighted that settling the embattled firm’s creditors would be a dense process that could take years to get solved in its entirety. Other crypto entities like Voyager and Three Arrows Capital have also used Chapter 11 bankruptcy to rebuild their business.
No precedents to follow
Part of the reasons that caused the delay in court is the lack of previous judicial precedents to follow. James Van Horn, a partner at Barnes & Thornburg, spoke with reporters about how the bankruptcy code and courts would treat entities closely linked to crypto.
While a crypto exchange like Mt. Gox faced a bankruptcy process, there is a deficiency of cases in a crypto lender like Celsius for the courts to follow. Stephen Gannon from Davis Wright Tremaine expressed their thoughts about the peculiarity of the case and compared it to playing three-dimensional chess.
Gannon said it’s probably going to take at least six months, at a minimum, to develop a strategy to overcome this bankruptcy status.
Another aspect to consider when it comes to a possible extension of this bankruptcy process is Celsius’ classification of its creditors. The clients may supposedly get listed as unsecured creditors, and this class has no earmarked rights to access any funds or anything linked to the company. This situation could open the floodgates of legal complaints, potentially clogging any hopes for a quick resolution for the parties involved.
The Situation Between Celsius and Individual Investors
Individual investors show concerns about how their interests would be at the bottom of the pecking order, while the most prominent creditors will become the center of the case. Martin Jabou, an investor who injected $45,000 of his assets in Celsius, has been left holding empty bags following the project’s Crashdown.
He thinks the affected would be the last on the list to see this case solved and does not know how to deal with problems like rent or car payments, especially with the other debts included.
The Crashdown of Celsius raised the interest of other entities in investor protection in the crypto space. The deposits in U.S. banks got insured by the Federal Deposit Insurance Corporation for more than $250,000, while brokerage accounts got protected by up to $500,000.
In crypto, such shields are not usual, but increasing regulations and the hard lessons from Celsius could have brought tons of changes in the industry.
By: Jenson Nuñez
