Celsius Creditors Claim 30% Reduced Compensation During Bankruptcy

A group of creditors of the bankrupt crypto lending firm Celsius is alleging that they are facing a reduction of over 30% in payments compared to what they were originally promised under the bankruptcy plan. This reduction is supposedly caused by a rule that allows only 100 Celsius corporate accounts to receive distributions through the Coinbase exchange, forcing some creditors to accept cash instead of cryptocurrency. Since the price of Bitcoin and Ether has significantly increased since the distribution was agreed upon, small business creditors are receiving much lower payments compared to the top 100 business accounts on Celsius.

One creditor in Australia, who wished to remain anonymous, claimed that they were owed 0.182 BTC and 3.05 ETH under the terms of the bankruptcy but were instead offered $15,741 in cash, which was 36% lower than the market value of the cryptocurrencies at the time. They provided emails between them and a representative from the law firm Kirkland & Ellis, who confirmed that they would receive a cash payment that was not equivalent to the promised crypto.

Certain creditors have sent letters to United States bankruptcy Judge Martin Glenn, complaining about the reduced payments. They argue that it is unfair that only 100 corporate accounts were selected to receive crypto distribution, while the rest are receiving USD checks and wires. Some creditors also questioned why Celsius chose to distribute funds in U.S. dollars instead of cryptocurrencies like Bitcoin and Ether.

The Celsius bankruptcy plan, confirmed by the court on November 9, uses two sets of crypto prices to determine the amount owed to creditors. One set is based on the petition date when Celsius filed for bankruptcy, and the other is the effective date for distributions. The plan calls for the payment of 57.9% of the owed amount in cash or crypto. Most creditors are receiving crypto rather than U.S. dollars.

To calculate the amounts owed to creditors, the petition date value of each cryptocurrency held in the creditor’s Celsius account is added up. 14.9% of the total amount is to be paid out in Ionic Digital mining company stock, 6.4% in “illiquid assets recovery” at a future date, and 20.8% will not be paid out due to Celsius being insolvent at the time. The remaining 57.9% is split for cash or crypto distribution, with a 50% allocation to BTC and 50% to ETH.

For example, a creditor who held 1 BTC and 1 ETH saw their holdings amount to $20,969.17 on the petition date. They would receive 57.9% of this amount as a cash or crypto payment, or $12,141.15. Half of this would be paid out as 0.14 BTC and the other half as 2.36 ETH. Compared to the original holdings, this represents an 86% decrease in BTC and a 135% increase in ETH.

Due to the ongoing crypto bull market, creditors are missing out on potential gains. If a creditor’s capital was not paid as of March 13, they would have missed out on even more gains, with Bitcoin priced at $72,665 and ETH at $3,980.40 on that day. Creditors argue that this arrangement is unfair and claim that they never agreed to it, but the Kirkland representative stated that the plan was agreed to by creditors and allows for payments in U.S. dollars if a regulation-compliant distribution partner cannot be found.