Celsius approved by court to transform into a Bitcoin mining company, creditors to become new shareholders?

According to a report by Bloomberg, cryptocurrency lending company Celsius has been approved by the bankruptcy court to transition into a Bitcoin mining company owned by its creditors, pending approval from the SEC. Celsius also plans to start distributing assets in early next year.

Transitioning to a Mining Company, CEL to Become Equity in New Company

Celsius has undergone weeks of deliberation, and CEL will be used in the future to distribute digital assets to creditors and for stock in the new Bitcoin mining company.

Individual clients have raised concerns about the new management team of the company and expressed disappointment in the bankruptcy plan and costs. Clients believe the plan significantly undervalues the worth of the CEL token.

When Celsius filed for bankruptcy in July 2022, CEL was essentially worthless at around $0.8, leading to client skepticism that using CEL as part of the company's debt or equity greatly undervalued their original holdings. After all, during the bull market, CEL peaked at $8.

In addition to Celsius moving away from bankruptcy and planning to transition into a Bitcoin mining company, Celsius lawyers also mentioned the potential distribution of assets starting early next year.

The proposal to transition into a cryptocurrency mining company still requires approval from the U.S. Securities and Exchange Commission (SEC). If the proposal falls through, Celsius may revert to liquidation. Therefore, Judge Glenn urged the SEC to act swiftly.

Furthermore, Judge Glenn stated that Celsius's bankruptcy plan spared him from having to rule on whether CEL constitutes a security, as it presents a complex legal issue with broader implications for regulation within the U.S. cryptocurrency industry.

Case Example of Debt-to-Equity Conversion

In traditional finance, there are precedents for debt-to-equity conversions. U.S. automakers General Motors and Chrysler both applied for bankruptcy protection in 2009, with creditors agreeing to convert their debt into newly issued common stock, leading to successful re-listings.

This type of debt restructuring plan, known as a debt-for-equity swap, allows creditors to convert their debt into newly issued equity, thereby gaining ownership of the company.

Before the bankruptcy of FTX, founder SBF had also expressed a desire to convert FTT into equity tokens.