Select Celsius Network creditors to receive compensation sooner

US Bankruptcy Judge Martin Glenn has ruled that Celsius creditors who collected money after the lender filed for bankruptcy may soon get their money back,

The Glenn decision stated that anyone who withdrew more than $40,000 or who transferred more than Celsius 200,000 during the three months prior to the lender’s bankruptcy filing would need approval from the Celsius Creditors Committee. This approval follows an earlier decision in December 2020 to airdrop Flair tokens to customers who hold XRP on the platform.

Celsius Creditors Eye Bitfinex Success Story

Creditors in one corner of Celsius’ bankruptcy ring have insisted that the lender issue new tokens to disburse creditors. This relatively new method is similar to how Bitfinex reimbursed hacked victims in 2016.

Bitfinex issued BFX tokens to all customers in 2016 after Ilya Liechtenstein and Heather Morgan allegedly laundered approximately 119,000 bitcoins from the exchange. Each BFX token, essentially an IOU, entitles the client to $1 of funds that Bitfinex can later buyback.

Alternatively, clients can settle for shares in Bitfinex’s parent company, iFinex, depending on how much they are owed. Bitfinex subsequently issued a recovery rights token, which entitles holders to a percentage of the exchange’s recovery after all BFX tokens are redeemed. Within eight months, Bitfinex reimbursed all creditors.

In the case of Celsius, Glenn would have to approve the issuance of a new token.

Public listing and token offering raise disclosure questions

Celsius’ lawyers have also toyed with taking the company public and issuing a new token to repay creditors.

As a public company, Celsius will potentially generate the liquidity needed to reimburse creditors if it sells its assets.

A public listing would bring greater transparency into Celsius’ internal controls, which should lead to greater transparency if the company continues to operate. Additionally, it will oblige the company to make certain disclosures to the SEC. Any organizational reorganization would require approval from creditors, whose votes Glenn would consider when ruling.

The elephant in the room will be whether the lender can issue the token without registering it as a security. A possible registration would depend on whether investments in DeFi protocols could perhaps be made to generate a yield. The finance watchdog previously rebuked several crypto companies, including Binance, for offering tokenized equity without prospecting for investors.

A stock purchased from a broker is essentially an IOU that the broker has purchased from the stock issuer. Similarly, cash in a bank account is simply a set of IOUs that entitle the holder to a certain dollar amount. If the bank goes bust, the IOUs may become worthless.

If Celsius issues new tokens, they will also essentially be IOUs. It will take time for Celsius to win public trust and generate enough money to reimburse creditors, but liquidity will likely be generated soon if the legal process runs its course.

The CEO of bankrupt exchange FTX recently said that reviving the exchange’s business could increase liquidity faster than the legal process.

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BeInCrypto has reached out to the company or the person involved in the story for an official statement regarding the recent development, but has yet to hear back.

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