Celsius: U.S. trustee objects to bid protections for NovaWolf

By Sarah Lizee

Olympia, Wash., March 13 – Celsius Network LLC’s request for bid protections to proposed plan sponsor NovaWulf Digital Management, LP drew an objection from Region 2 U.S. trustee William K. Harrington, according to documents filed Monday with the U.S. Bankruptcy Court for the Southern District of New York.

As previously reported, NovaWulf has committed resources, including an investment of $45 million of cash to implement restructuring transactions that will facilitate recoveries for the debtors’ creditors.

Harrington said the proposed bid protections should not be approved until and unless the motion discloses whether and to what extent a recent memorandum opinion has on the motion, as well as the plan term sheet.

On March 9, the court issued an opinion that concluded that customer (i.e. account holder) contract claims were limited to claims against only Celsius Network LLC, and not against Celsius Network Ltd., the top-level parent company, where the series B preferred holders made significant investments – although the court specifically noted that the series B preferred holders’ investment contracts did not prohibit the parent company and its affiliates, other than Celsius Network LLC, from incurring customer liability.

The U.S. trustee also said, given there isn’t a conventional sale price, there should be further explanation of how the $5 million breakup fee was determined, and whether the expense reimbursement of $15 million will be augmented by an additional $15 million under the management agreement if the plan sponsor agreement is implemented.

Also, more information is warranted regarding the management fee, the incentive fee, and the distribution of liquid cryptocurrency to account holders, Harrington said.

The U.S. trustee said the motion should include the total amount of claims held by all account holders, holders of claims under $5,000, and holders of claims over $1,000 but not more than $5,000.

In addition, the motion should provide an estimate of the liquid cryptocurrency distribution amount likely to be available to the holders of general earn claims on the plan effective date, the U.S. trustee said.

Finally, the motion should confirm that the holder of a $1,000 convenience class claim will receive $700 of liquid cryptocurrency regardless of when all digital currencies are converted to the liquid cryptocurrency.

Harrington said that while the timing and market conditions at the time all digital currencies are converted to liquid cryptocurrencies will affect the liquidation cryptocurrency distribution amount, the motion should provide an estimated range of the recovery percentage likely to be distributed to the holders of the general earn claims on the effective date.

The Hoboken, N.J.-based cryptocurrency lending platform filed bankruptcy on July 13, 2022 under Chapter 11 case number 22-10964.

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