SEPTEMBER 2022 Turnarounds & Workouts 5
Crypto Winter , from page 4
typical bankruptcy .” This case is about Voyager ’ s customers and the looming question of can customers recover their crypto assets without going through the bankruptcy proceeding , they say .
“ At the moment , it appears that the debtor platforms would like to maintain the integrity of the depositors specific crypto asset claims . As a business matter , it may be hard for platforms to continue as viable enterprises if deposits are treated as a single , commingled pool of currencies , and separate asset classification may be necessary for a successful reorganization . But if liquidation appears more likely , then the pressure to aggregate assets and claims may push towards treating depositors as a single class that shares recovery on an overall , aggregated basis ,” Kleiner adds .
Treatment of Borrowers
Another interesting issue that is likely to emerge from the Celsius case is the treatment of borrowers , according to Gold and Kleiner . Gold explains Celsius had a lending program , whereby it would lend depositors USDC against “ collateral ” deposited with Celsius by the borrower . Celsius then took the collateral into its own account and lent or staked it , earning a return which Celsius kept . Prior to the bankruptcy and following the sharp drop in crypto prices , Celsius demanded that borrowers post additional collateral or face liquidation of their collateral . Since Celsius was freezing withdrawals , many borrowers elected to have their positions liquidated rather than deposit additional collateral that might become frozen ( as has now happened , given the bankruptcy filing ). Since the bankruptcy filing , the status of the loan program is uncertain , with depositors unsure of how to proceed on their loans . Because the loans are significantly “ over-secured ,” many depositors would like to pay off the loan balance and get the return of their collateral . But , given the freeze on Celsius accounts , there is no mechanism to do that . Moreover , there will be a legal question as to whether the “ collateral ” is property of the borrower / depositor or simply property of Celsius with borrowers having only an unsecured claim to receive back their posted collateral .
Safe Harbor , Other Issues
Gold and Kleiner further note that one issue that may critically affect preference and fraudulent conveyance actions that may be brought in the
Voyager and Celsius cases is the applicability of the Safe Harbor . The Safe Harbor provides significant protection to defendants in bankruptcy clawback actions with regard to transactions that involve securities or commodities . Accordingly , the currently unresolved questions of whether the coins involved in Voyager and Celsius can be considered securities or commodities can affect the applicability of the Safe Harbor , Kleiner says .
He adds , “ The Voyager and Celsius debtors have not yet revealed whether and to what extent they will be bringing clawback actions . Indeed , the statute of limitations allows such actions to be timely brought as much as two years after the bankruptcy petition is filed , and it is common for a debtor in possession to defer the filing of clawback complaints until after a plan of reorganization has been confirmed . Accordingly , it may be some time before Safe Harbor issues are litigated .”
For Dendinger , Termine and Burns , the handling of private keys of crypto wallets has become a novel issue in these bankruptcy proceedings . Private key is an important element of blockchain . It may also be the key for Voyager customers to protect themselves through the courtapproved sale process that is ongoing , www . TurnaroundsWorkouts . com