Creditors of Celsius claim to have received 30% less compensation than initially promised amidst the company’s bankruptcy.

A group of creditors belonging to the bankrupt crypto lending firm Celsius is expressing dissatisfaction with a payment reduction of allegedly 30% or more compared to what was originally promised in the bankruptcy plan. The reduction is said to be 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. As Bitcoin (BTC) and Ether (ETH) have increased significantly in value since the distribution was agreed upon, small business creditors are receiving significantly less than the top 100 business accounts on Celsius.
One Celsius creditor in Australia, who wishes to remain anonymous, claims to be owed 0.182 BTC and 3.05 ETH under the terms of the bankruptcy. However, they were informed by the law firm representing Celsius debtors, Kirkland & Ellis, that they would not receive the original amount. Instead, they will receive $15,741 in cash, which is 36% less than the cryptocurrencies’ market value of $24,552 at the time of publication. In contrast, a top-100 Celsius corporate creditor will receive the full promised amount of cryptocurrency, according to the creditor.
The creditor provided Cointelegraph with emails between them and a representative from Kirkland & Ellis. In the emails, the representative acknowledges that the creditor will receive a cash payment that does not match the promised cryptocurrency. The representative states, “I understand the frustration that crypto prices have gone up since your fiat distribution was reserved, but if prices had gone down, you would be [also] getting more BTC and ETH.” The representative claims that a Coinbase rule is responsible for the reduced payments.
Several creditors have sent letters to United States Bankruptcy Judge Martin Glenn, who is overseeing the case, to complain about the payment reduction. Jake and Sheri Faller of Oak Park, California, state that their payments are being reduced by 26% to 33% due to the alleged Coinbase rule, which they consider unfair. Hui Ka Hin, a resident of Hong Kong, also complains to Judge Glenn about being forced to accept US dollar distribution instead of cryptocurrency, as previously mentioned in the bankruptcy. Hin claims that crypto distribution is allowed in Hong Kong, but for unknown reasons, Celsius chose to distribute funds in US dollars.
The Celsius bankruptcy plan was confirmed by the court on November 9. The plan uses two different sets of cryptocurrency prices to determine the amount owed to creditors. The first set of prices is based on the “petition date,” which is the date Celsius filed for bankruptcy on July 13, 2022. The second set of prices is the “effective date” for distributions on January 31, 2024.
To calculate the amount owed to creditors in US dollars, the debtors add up the petition date value of each cryptocurrency held in the creditor’s Celsius account. 14.9% of this amount will be paid out in Ionic Digital mining company stock, 6.4% in “illiquid assets recovery” at a later date, and 20.8% will not be paid out due to Celsius being insolvent at the time of the petition. This leaves 57.9% to be paid out in cash or cryptocurrency.
Most creditors are being paid in cryptocurrency rather than US dollars. The “effective date” prices are used to determine the amount of cryptocurrency owed to each creditor. The plan calls for a 50% BTC and 50% ETH distribution to most creditors. The dollar amount owed is divided into two halves, with the first half paid out as BTC and the second half as ETH.
For example, a creditor who held 1 BTC and 1 ETH at the time Celsius stopped processing withdrawals would have seen their holdings valued at $20,969.17 on the petition date. However, they would only receive 57.9% of that as a cash or cryptocurrency payment, which is $12,141.15. Half of this amount, $6,070.58, would be paid out as 0.14 BTC, while the other half would be paid out as 2.36 ETH. This represents an 86% decrease in BTC and a 135% increase in ETH compared to the creditor’s initial holdings.
In terms of dollar value, 1 BTC and 1 ETH had a combined value of $45,550 on the effective date. This means that the hypothetical creditor missed out on $33,408.85 in gains during the ongoing crypto bull market as the bankruptcy proceedings unfolded.
If the hypothetical creditor held a corporate account that was not among the top 100 asset holders and had not been paid as of March 13, they would have missed out on even more gains. The price of BTC on March 13 was $72,665, and ETH was worth $3,980.40. This means they missed out on $64,503.85 in gains, or an additional $31,095 compared to what they would have received if they had been paid in cryptocurrency.
The creditor who spoke to Cointelegraph about the issue referred to this as “special treatment for some” and claimed that creditors never agreed to this arrangement. The Kirkland representative responded by stating that the plan was agreed to by creditors and that it stipulates payments will be made in US dollars if a regulation-compliant distribution partner cannot be obtained. Celsius debtors’ attorneys responded to the claims made by corporate account holders outside of the top 100, stating that the cryptocurrency owed to these creditors has already been sold, and thus, the debtors have not benefited from the rise in crypto prices and cannot pass on these benefits to creditors.