Ultimately, the costs of representing the interests of preferred equity holders should not be borne by the debtors’ individual account holders, many of whom have lost access to their retirement accounts, life savings, college funds, and other personal savings as a result of these bankruptcy cases.
In the latest installment of the legal proceedings involving embattled large crypto lender Celsius Network, unsecured creditors opposed the Ch. 11 equity committee proposal on Thursday.
Unsecured creditors of cryptocurrency investment platform Celsius Network LLC objected late Thursday to the appointment of an official committee of preferred equity security holders, telling a Delaware bankruptcy court such an appointment would be redundant and unnecessary.
In the objection, the unsecured creditors committee said the parties moving for the creation of an additional committee for preferred stockholders are private equity firms that manage hundreds of billions of dollars and are already represented by two large, global law firms.
“This unprecedented request lacks any basis in the law or the facts and circumstances of these cases, and, if granted, would subsidize private equity fund managers at the expense of the debtors’ account holders,” the objection said.
Celsius, which allows users to earn rewards on deposits of various digital assets such as bitcoin and Ethereum, filed for bankruptcy in July, citing a crash in crypto values and “poor asset deployment decisions.”
Community First Partners LLC, Celsius SPV Investors LP, Celsius New SPV Investors LP and CDP Investissements Inc. collectively hold 87% of Series B preferred shares issued by Celsius. They moved last month for the appointment of an official preferred equity committee in the case, arguing they need to have their specific interests adequately represented in the proceedings.
The holders said there are critical questions to be resolved in the case, including the determination of customer claim values, liability among the debtors for those claims and the allocation of sale proceeds.
In the objection, the creditors committee said the equity holders cannot meet the heavy burden to show they are not being adequately represented in the case because they have been active participants in proceedings already with respect to contentious issues. The committee also said the equity holders can’t show they are likely to receive a recovery in the Chapter 11 case given the debtor’s undisputed insolvency.
Celsius will be saddled with the costs of funding an official committee if one is appointed, and the creditors committee — itself funded by the debtor — argued that adding additional administrative costs onto the estate would negatively impact the debtor’s customers.
“Ultimately, the costs of representing the interests of preferred equity holders should not be borne by the debtors’ individual account holders, many of whom have lost access to their retirement accounts, life savings, college funds, and other personal savings as a result of these bankruptcy cases,” the objection said.
Representatives for the parties did not immediately respond Friday to requests for comment.
Celsius is represented by Joshua A. Sussberg, Patrick J. Nash Jr., Ross M. Kwasteniet, Christopher S. Koenig and Dan Latona of Kirkland & Ellis LLP.
The unsecured creditors committee is represented by David M. Turetsky, Keith H. Wofford, Samuel P. Hershey, Michael C. Andolina, Gregory F. Pesce and Aaron E. Colodny of White & Case LLP.
The moving equity holders are represented by Dennis F. Dunne, Nelly Almeida, Andrew M. Leblanc and Melanie Westover Yanez of Milbank LLP and Joshua M. Mester of Jones Day.
The case is In Re: Celsius Network LLC et al., case number 1:22-bk-10964, in the U.S. Bankruptcy Court for the Southern District of New York.
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