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Celsius successor to be seeded with $450 million in crypto if restart plan approved

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The prospective successor to bankrupt crypto lender Celsius said it will have no funded debt and seed funding of up to $450 million in cryptocurrency if its plan to restart the business gets court approval, according to a recent filing ahead of a confirmation hearing on Monday.

During the New York bankruptcy hearing yesterday, the firm, currently dubbed “NewCo” said it also plans to begin repaying customers whose funds were frozen after Celsius’s collapse in June 2022 by the end of this year, Bloomberg reported, adding it was the “best possible recovery” option for customers.

NewCo will be managed by the investment consortium Fahrenheit, which has also committed to invest up to $50 million as an equity stake in the new business, with Fahrenheit’s management team compensated in NewCo’s common stock.

“Fahrenheit believes in the business,” Celsius lawyer Christopher S. Koenig said at the hearing. “They are putting their money where their mouth is.” Fahrenheit made the winning bid to acquire Celsius’ assets in May, led by crypto investment firm Arrington Capital. Fahrenheit plans to take over Celsius’ institutional loan portfolio, staked crypto and bitcoin mining unit.

Distributing $2 billion worth of bitcoin and ether

Under the plan, debtors will distribute about $2 billion worth of bitcoin and ether to creditors “as soon as reasonably practicable,” according to a letter from that group in August, reiterated in the confirmation hearing filing. NewCo also plans to be listed on Nasdaq to “maximize liquidity.”

Judge Martin Glenn is currently considering whether to approve NewCo’s reorganization plan, which also needs to be cleared by securities regulators. The majority of creditors impacted by the Celsius bankruptcy voted in favor of the plan by more than 98 percent last month, according to a filing. However, some customers still oppose the move. An affiliate of Lantern Ventures that says it’s owed $82 million argues Celsius’ advisers have overvalued the new business, Bloomberg noted.

If the court approves Celsius’s proposal, it would mark the first instance of a crypto platform’s revival post-bankruptcy after a series of insolvencies jolted the crypto industry last year. If the plan fails, Celsius may go into liquidation, which could result in lower recoveries for creditors.

Celsius’ bankruptcy

Celsius filed for bankruptcy protection in July last year, owing billions of dollars to investors amid a broader crypto downturn. Documents filed in August 2022 showed a $2.8 billion hole in the company’s crypto assets on hand compared to its liabilities.

The collapsed crypto lender has also faced scrutiny from multiple regulators, including the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Federal Trade Commission.

The SEC sued Celsius and former CEO Alex Mashinsky in July this year for allegedly fraudulent activities, the unregistered sale of “crypto asset securities,” and price manipulation of its native CEL token. Mashinsky posted a $40 million bond and pleaded not guilty to criminal charges.

Last month, Arrington Capital founder Michael Arrington removed himself from the board of NewCo in a decision that appeared to result from Simon Dixon’s appointment to the position of board observer. Dixon is one of the top ten Celsius creditors.

The court hearing over the Chapter 11 plan continues today.

© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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