Celsius Network has joined Voyager Digital in the Chapter 11 club. On Wednesday, the crypto loan company announced it had initiated Chapter 11 bankruptcy proceedings in an effort to restructure its business.
The move comes after weeks of uncertainty surrounding the company, which halted withdrawals due to “extreme market conditions.”
@blockhead.co #Celsius is at boiling point! To #HODL or not to HOD, that is the question. #blockchain #cryptocurrency #crypto #web3 #sgnews ♬ Presh Frince Dnb-JP – Carlton Banksy
Towards the end of June, Celsius’s own lawyers advised for it to file for bankruptcy but the company believed its clients would receive more value if it avoids bankruptcy. Celsius argued that avoiding bankruptcy would buy the firm more time to clear trades stuck in illiquid positions.
However, Celsius has since changed its tune. “Today’s filing follows the difficult but necessary decision by Celsius last month to pause withdrawals, Swap, and transfers on its platform to stabilize its business and protect its customers,” the company wrote in an email to users.
“Without a pause, the acceleration of withdrawals would have allowed certain customers—those who were first to act—to be paid in full while leaving others behind to wait for Celsius to harvest value from illiquid or longer-term asset deployment activities before they receive a recovery.”
What is Chapter 11?
Chapter 11 allows the company to preserve its assets whilst it intiaties financial restructuring. Celsius now isnists that Chapter 11 “maximise value for all stakeholders including its entire customer community.”
“The goal is to formulate and confirm a plan of reorganization that can provide for the distribution of value to Celsius’s customers and other creditors,” the firm explained in a video.
Last week, Voyager Digital faced a similar fate, initiating Chapter 11 to “create an efficient path to resume account access and return value to customers.”
What does it mean for Celsius users and clients?
Unfortunately for current users, Celsius has not committed to allowing withdrawals. “Most account activity will be paused until further notice,” the company said in a blog post.
“Withdrawals, Swap, and transfers between accounts will remain paused, and rewards will stop accruing as of the date of the filing. Celsius is not requesting authority to allow customer withdrawals at this time.”
Read more: Celsius & Euro Pacific as Spiritual Twins
New loans will not be permitted but existing loans will continue to be serviced. Maturity dates, margin calls, and interest payments will also continue as before.
As ordered by the Court, Celsius is required to pay all “post-petition” obligations. Services provided from 13 July are considered as such.