Celsius, a cryptocurrency lending platform, has filed for Chapter 11 bankruptcy. The lender filed for bankruptcy around two months after halting functions such as withdrawals, swaps, and transfers because of a liquidity crisis.
Celsius files for Chapter 11 bankruptcy
Celsius shared the announcement on July 13 on its Twitter page. In the announcement, Celsius vowed to recover from bankruptcy and continue to secure its position as one of the largest companies in the cryptocurrency sector.
Chapter 11 bankruptcy is a filing where a company is allowed to remain in business and restructure its operations. Celsius pointed to companies that had filed for Chapter 11 bankruptcy in its FAQ, such as Delta, General Motors, Marvel, and American Airlines.
The recent filing shows that Celsius could not reimburse funds to its investors, at least for the short term. The happenings with Celsius are similar to what happened with Mt Gox in 2014. Mt Gox was once one of the largest cryptocurrency exchanges, but it was shut down after a massive hack in 2014.
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The investors that had funds in Mt Gox have been forced to wait many years for their funds reimbursed. Some of the investors in this exchange could start receiving their money this year, around 8 years since the exchange halted services.
The Celsius board argued that this bankruptcy filing was necessary for the company and the community. The co-founder and the CEO of Celsius, Alex Mashinsky, said that the company had hired an experienced team that would guide it through the process.
The company also added that it was planning to fulfill some of its recurrent obligations, such as paying employees and sustaining their benefits. CEL said it would continue serving its existing loans, meet margin calls and make interest payments as it had previously done.
Celsius plans to restructure
The Chapter 11 bankruptcy filing shows that the company is not planning to disappear, and investors have hope that the lender could resume its operations soon. However, the issue with Celsius has already attracted regulatory attention due to the company halting withdrawals without providing disclosure for the same.
Before filing for these proceedings, Celsius had closed off the debts it owes to decentralized finance (DeFi) protocols. The company paid off its debts to companies such as MakerDAO, Aave, and Compound. Within a month, Celsius has almost cleared its entire debt of around $820M from DeFi platforms.
The company is also hiring teams that will help it to restructure. The company recently appointed a new law firm to help with restructuring. It has appointed a new director who will guide it with the restructuring. One of the recent appointees is David Barse, the CEO of XOUT Capital.
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