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Bankrupt crypto lender Celsius announced Wednesday that it has selected Novawulf Digital Management, a digital asset investment firm, to help bring its high-profile bankruptcy case to a close.
The sale and reorganization plan was put forth by Celsius’ Debtors, with the full support of Celsius’ official unsecured creditors committee (UCC).
The plan calls for the creation of a new company that would be managed by NovaWulf. NovaWulf would also make a direct cash contribution of between $45 million to $55 million to the new venture.
“The Debtors believe 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,” Celsius stated.
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
The new venture would prevent debtors from assuming significant costs associated with liquidating customer assets and winding down the company, the plan states. Celsius estimated that over 85% of the bankrupt lender’s customers would be able to recover around 70% of their claims in liquid crypto—which doesn’t include staked Ethereum.
The new company would place creditors with claims less than $5,000 related to Celsius Earn Accounts—accounts that rewarded customers with interest on crypto that was then lent out—into a “Convenience Class,” enabling them to receive funds through a one-time distribution of Bitcoin, Ethereum, and the stablecoin USDC.
Creditors owed more than $5,000 will be allowed to reduce their claim to that amount to join the class, and creditors owed at least $1,000 can opt out of the class and receive a portion of yet-to-be-determined funds recovered for general Earn participants.
The new company would be completely owned by Celsius’ Earn creditors, and ownership in the company would be distributed as a token that would trade on a network called Provenance Blockchain through a regulated broker-dealer.
When Celsius entered Chapter 11 bankruptcy in July it had around 300,000 active users with account balances greater than $100. But customers lost access to their deposits when Celsius froze withdrawals on its platform in June, citing “extreme market conditions.”
A court-appointed examiner recently found the interest rate Celsius offered customers was not based on the realistic return of lending assets, but rather on promoting a better offer than its competitors.
Before the company filed for bankruptcy, customers earned rewards in the form of Celsius’s CEL token. The token was valued as high as $8.05, and while it currently trades at around $0.50, the plan proposes paying out CEL Earn claims at $0.20–the token’s price when it was initially offered to the public.
The plan noted that Insider CEL token claims, which involve buyers that were granted early access to the sale, will not be honored in the recovery process.
Celsius contacted over 130 parties and executed non-disclosure agreements with 40 potential bidders, the plan states. The company later received six bids for Celsius’ retail platform and three bids for its mining operations.
Under the new company, NovaWulf would bolster Celsius’ mining business to the benefit of equity holders, with $50 million set aside. The mining section of the new company would have over 120 mining rigs and would pay dividends to equity holders.
With NovaWulf and Celsius’ Debtors on board with the plan, the two parties will work on establishing a binding agreement in the coming days. The agreement will also have to be approved by the bankruptcy court in the Southern District of New York.
“While much work remains to be done, the Debtors are committed, now more than ever, to consummating the deal with NovaWulf,” Celsius stated.
The proposed plan could potentially serve as a guide for other companies if it’s put into place, as Celsius is not the only crypto lender that’s faced trouble since digital asset prices began to skid last year.
Voyager filed for Chapter 11 bankruptcy in July after it disclosed $661 million in exposure to the collapse of crypto hedge fund Three Arrows Capital (3AC), which collapsed just days before.
And after accepting a $250 million credit line from the now-bankrupt crypto exchange FTX, BlockFi filed for bankruptcy in November amid the collapse of Sam Bankman-Fried’s crypto empire.
Most recently, Genesis, a subsidiary of Digital Currency Group, filed for bankruptcy in late January, stating it also faced liquidity issues from the collapse of 3AC as well as FTX.