Crypto lending platform Celsius confirmed on July 13 the anonymous report that it has initiated Chapter 11 bankruptcy proceedings in the Southern District Court of New York. The declaration was shared on the company’s Twitter and shared with account holders via email on July 13, with a pledge to “emerge from Chapter 11 positioned for success in the cryptocurrency industry.”
According to Investopedia, a Chapter 11 bankruptcy permits a company to stay in business and reorganise its obligations. Companies that have successfully reorganised under Chapter 11 include American Airlines, Delta, General Motors, Hertz, and Marvel according to an updated FAQ by Celsius.
Head of tax at crypto accounting software firm Koinly, Danny Talwar, shared his apprehensions with Cointelegraph that the proceedings signify that the investors and customers of Celsius may not see their funds returned for the “foreseeable future,” similar to the fallout from the Mt Gox hack in 2014 which is still ongoing.
Celsius in a statement on July 13 said it aims to use $167 million in cash-on-hand to continue “certain operations” during the restructuring process and said it aims to eventually “restore activity across the platform” and “return value to customers.”
Though, customer withdrawals are set to remain paused “at this time.”
Members of the Celsius board said the move to bankruptcy follows a “difficult but necessary” verdict last month to pause withdrawals, swaps, and transfers on the platform.
Alex Mashinsky, the Celsius co-founder and CEO, claimed that it is the “right decision for our community and company.”
“We have a strong and experienced team in place to lead Celsius through this process. I am confident that when we look back at the history of Celsius, we will see this as a defining moment, where acting with resolve and confidence served the community and strengthened the future of the company.”
Celsius has also appointed a new director to guide it through the restructuring process, including David Barse, a “pioneer” in distressed investing who is the founder and CEO of index company XOUT Capital.
Through “first day” motions, the company said it intends to pay employees and continue their benefits. The company says it will also continue to service existing loans with maturity dates, margin calls, and interest payments to continue as they have in the past.
Though some in the community have taken the news as a negative for Celsius, Talwar claims that crypto investors should not panic, as a Chapter 11 bankruptcy filing will mean Celsius will pledge to make their investors whole “and not just disappear.”
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