Celsius Clawback: Are Pre-Bankruptcy Withdrawals at Risk?

Navigating the aftermath of crypto lender Celsius’s bankruptcy? You’re not alone. If you were a Celsius account holder and made withdrawals before the platform froze operations, you need to pay attention. Celsius is now seeking to reclaim funds withdrawn by certain users in the months leading up to its bankruptcy filing. This move, targeting larger withdrawals, has sent ripples through the crypto community. Let’s break down what’s happening and what it could mean for you.

Celsius Seeks Return of Pre-Bankruptcy Withdrawals: What’s the Situation?

In a recent filing on January 9th, Celsius bankruptcy administrators officially announced their intent to recover withdrawals made in the 90 days preceding their bankruptcy declaration on July 13, 2022. This action specifically targets account holders who withdrew $100,000 or more during this critical period. Essentially, if you moved a significant amount of crypto off Celsius before the freeze, you might be asked to return a portion of it.

• Who is affected? Account holders who withdrew $100,000 or more between April 14, 2022, and July 13, 2022.
• What are they asking for? Administrators are requesting these users to return 27.5% of the withdrawn funds to settle their potential liability.
• Why are they doing this? This is a standard procedure in bankruptcy cases known as “clawback.” The aim is to ensure fairer distribution of assets among all creditors, preventing some users from being unfairly advantaged by withdrawing funds just before bankruptcy.

Understanding “Withdrawal Preference Exposure”

Celsius refers to this potential liability as “withdrawal preference exposure.” This term essentially means that withdrawals made shortly before bankruptcy could be seen as preferential payments to certain creditors (those who withdrew) at the expense of others who were unable to withdraw or didn’t withdraw in time. Bankruptcy law often seeks to level the playing field by recovering these preferential payments.

For those facing this “withdrawal preference exposure,” Celsius has outlined a settlement option:

• Settlement Offer: Pay 27.5% of the withdrawal amount by January 31, 2024.
• Deadline to Indicate Intent to Settle: January 25th – users need to submit an election form to show they intend to settle.
• Benefits of Settling:
  • Release from Avoidance Actions: You avoid potential lawsuits from Celsius to recover the full withdrawal amount.
  • Participation in Reorganization Plan Distributions: You remain eligible to receive distributions as outlined in the Celsius reorganization plan.

See Also: Celsius To Unstake Thousands Of ETH, Will This Ease ETH Selling Pressure?

What Happens if You Don’t Settle?

Choosing not to settle by the January 31st deadline means you risk facing further action from Celsius. The filing explicitly states that:

“Any Withdrawal Preference Exposure that is not settled by January 31, 2024, will be addressed by the Litigation Administrator after the Effective Date through separate correspondence or other action.”

This means Celsius could pursue legal action to recover the full amount of the withdrawal preference. Litigation can be costly and time-consuming, making the 27.5% settlement offer potentially attractive for those affected.

Celsius’s Ongoing Efforts to Repay Creditors

This clawback effort is part of Celsius’s broader strategy to maximize asset recovery and distribute funds to creditors. Despite the challenges, there have been some positive developments:

• Customer Withdrawals Re-Enabled (Partially): In late November 2023, Celsius allowed eligible users to withdraw some of their cryptocurrency holdings. This was a significant step forward for those who had funds locked on the platform.
• Ethereum Unstaking: Celsius has been actively unstaking and withdrawing large amounts of Ethereum. This move is directly linked to preparing for “timely distributions to creditors.”

See Also: Celsius Customers Can Withdraw Their Assets But Must Comply With AML Rules

According to Nansen, Celsius currently holds a significant portion of the Ethereum withdrawal queue, demonstrating their ongoing efforts to access and distribute assets.

Furthermore, Celsius has shifted its focus to Bitcoin mining as a post-bankruptcy strategy. This plan, approved in late December 2023, indicates a long-term approach to generating value and repaying creditors.

Key Takeaways for Celsius Users

If you withdrew $100,000 or more from Celsius in the 90 days before bankruptcy, here’s what you need to consider:

• Check if you are affected: Review your withdrawal history on Celsius and see if you meet the criteria.
• Understand the Settlement Offer: Evaluate the 27.5% settlement option and weigh it against the potential risks and costs of litigation.
• Meet the Deadlines: If you choose to settle, ensure you submit the election form by January 25th and make the payment by January 31st.
• Seek Professional Advice: If you are unsure about your situation or the best course of action, consult with a legal or financial professional familiar with bankruptcy and crypto regulations.

In Conclusion: Navigating the Celsius Bankruptcy Landscape

The Celsius bankruptcy saga continues to unfold, and the attempt to recover pre-bankruptcy withdrawals is a significant development. While it may seem unsettling to those who withdrew funds, it’s a standard procedure in bankruptcy cases aimed at fair distribution. For affected users, understanding the situation, evaluating the settlement offer, and acting within the given deadlines are crucial steps in navigating this complex process. Staying informed and seeking professional advice can empower you to make the best decisions for your situation as the Celsius restructuring moves forward.