Celsius Debtors Seek to Merge CNL, LLC Amid Record-keeping Deficiency

  • There are allegations of significant deficiencies in record-keeping.
  • Debtors estimate that a complete reconciliation is impractical.

On Monday, debtors of the bankrupt crypto lender Celsius filed a motion to substantively consolidate the firm’s estates, an attempt to treat the UK-based Celsius Network Limited (CNL) and the US-based Celsius Network LLC (LLC) as a single entity for the bankruptcy case.

This motion comes amid allegations of significant deficiencies in the record-keeping and internal systems of the Celsius firms. According to the court document, the flaws have made determining the intercompany claims between CNL and LLC challenging, resulting in chaos.

The debtors estimated that thousands of entries were missing from the records, and a complete reconciliation may not be possible. The motion argued that the estates of CNL and LLC are “hopelessly intertwined” and that the cost of disentangling them would outweigh the benefits to all creditors.

As a result, Celsius’ debtors believe substantive consolidation was an appropriate remedy and in the best interests of all creditors. Notably, the motion was filed with the US Bankruptcy Court for the Southern District of New York, and a hearing is yet to be scheduled.

In 2021, Celsius faced regulatory pressure to withdraw its operations in the United Kingdom, leading to a transatlantic migration of its customer-facing business from CNL to LLC. However, the migration created several challenges, including incomplete formal documentation of their relationship, missing records of intercompany coin transfers, and significant deficiencies in their record-keeping.

After estimating the extent of the missing record, Celsius debtors saw two options — a full reconciliation or substantive consolidation of the estates. The debtors preferred the latter, given that it would be less time-consuming.

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