Celsius Network LLC – Court Approves Bidding Procedures for Sale of GK8 Assets (No Stalking Horse and 15 NDAs), Schedules October 6th Sale Hearing

Celsius Network LLC – Court Approves Bidding Procedures for Sale of GK8 Assets (No Stalking Horse and 15 NDAs), Schedules October 6th Sale Hearing

September 1, 2022 – The Court hearing the Celsius Network cases issued an order: (i) approving bidding procedures in respect of the sale (the “Sale”) of the Debtors’ equity interests in non-Debtor GK8 Ltd. (“GK8” and such equity interests the “GK8 Assets”), (ii) authorizing the Debtors to select one or more stalking horse bidders (none selected yet) and offer bid protections* to any selected stalking horse and (iii) adopting an auction/sale timetable culminating in a September 23, 2022 auction and an October 6, 2022 sale hearing [Docket No. 687].

* Comprised of (i) a break-up fee (not more than 3% of Qualified Bid) and (ii) expense reimbursement up to $400k.

On July 13th, Celsius Network Limited and seven affiliated Debtors (“Celsius” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 22-10964 (Judge Martin Glenn). At filing, the Debtors, who own and operate a P2P lending platform, noted estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn.

Marketing Process

The motion [Docket No. 188] states, “[t]he Debtors believe that the Bidding Procedures will best facilitate a competitive marketing process, thereby maximizing recoveries for all creditors. Consistent with this goal, prior to the Petition Date, the Debtors engaged Centerview Partners LLC (‘Centerview’) to lead a marketing process designed to identify potential bidders for and maximize the value of the GK8 Assets.

The Debtors, in consultation with Centerview, developed a list of approximately 29 parties whom they believed may be interested in, and whom the Debtors reasonably believed would have the financial resources to consummate, a Sale. The list of parties in discussion includes strategic parties, other companies in the cryptocurrency ecosystem, scaled fintech companies and traditional financial institutions (collectively, the ‘Contact Parties’). As of the date hereof, approximately 15 parties have been restricted in connection with the evaluation of a transaction for the GK8 Assets.

Restricted parties were granted access to a virtual data room populated with diligence materials to facilitate their assessment of the GK8 Assets. Some of these parties were also given the opportunity to discuss with GK8’s management team. Centerview and the Debtors will continue to work with all interested parties (and any additional parties) to provide diligence materials and support the marketing process.

The marketing process and Bidding Procedures proposed herein will enable the Debtors and their advisors to move expeditiously to complete a thorough marketing process; receive, evaluate and improve upon bids; execute one or more Stalking Horse Agreements if doing so will maximize the value received for their assets; and hold an auction, if necessary, to determine the highest or otherwise best bid (or bids). The marketing process and the Bidding Procedures will result in the highest or otherwise best available offer for the assets. To the extent the Debtors move forward with a sale transaction for the GK8 Assets, the Debtors submit that such transaction will be in the best interest of the Debtors’ estates and their stakeholders.”

Key Dates

  • Final Bid Deadline: September 21, 2022
  • Auction: September 23, 2022
  • Sale Objection Deadline: September 29, 2022
  • Sale Hearing: October 6, 2022

GK8 Background

The Mashinsky Declaration provides, “In 2021, the Company acquired GK8, which is designed to provide a secure institutional digital assets self-custody technology platform to institutional clients… The Company intended to use the acquisition of GK8 to enhance the Company’s ability to provide consumers with custody services by April 2022.

While Celsius has not been able to integrate GK8’s operations post-acquisition given Celsius’ focus on its own liquidity position, GK8 is a valuable asset in light of an industry-wide migration to self-custody post the ‘cryptopocalyse.’ The Company is exploring both a marketing and sale process of the GK8 business and a complete integration and utilization of the GK8 business into Celsius’ own platform.”

Case Status

On July 13, 2022, Celsius Network Limited and seven affiliated Debtors (“Celsius” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 22-10964 (Judge Martin Glenn). At filing, the Debtors, which own and operate a P2P lending platform allowing users to borrow and lend cryptocurrencies, noted estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn. In June, Celsius informed users that it was freezing all withdrawals, swaps and transfers between accounts because of “extreme market volatility.” The Company handled around $11.8 billion in assets as of May 17 and has 1.7 million users.

On July 25, 2022, the Debtors filed a motion to sell mined bitcoin [Docket No. 187], with the motion stating: “Since filing chapter 11 petitions, Celsius has continued its mining activities. However, out of an abundance of caution, Celsius has discontinued monetizing the Bitcoin generated from its mining activities. As a result, Celsius has been financially constrained. The Debtors, in an exercise of their reasonable business judgment, believe that the continued monetization of its mined Bitcoin consistent with past practice and in the ordinary course of business is an efficient way to generate liquidity to help fund the Debtors’ operations.”

On August 16, 2022, Judge Martin Glenn granted the Debtors’ motion for approval to sell mined bitcoin, despite expressing reservations about the potential success of that venture, but declined to approve a motion for the sale of de minimis assets following concerns raised by the Office of the U.S. Trustee regarding the nature of those assets.

On September 1, 2022, the Debtors filed a motion asking the Court to authorize the reopening of withdrawals for certain customers with respect to specified assets held in a custody program and withhold accounts [Docket No. 670]. Previously on August 31, 2022, an ad hoc group of custodial account holders filed an adversary proceeding against the Debtors [Docket No. 662], seeking a ruling from the Court that custody assets are not part of the Debtors’ estates.

According to the motion, “As of the date hereof, approximately 58,300 users hold Custody Assets (the ‘Custody Customers’) that are worth approximately $210.02 million in the aggregate (as of August 29, 2022). Of the Custody Customers, approximately 15,680 hold Pure Custody Assets that are worth, in the aggregate, approximately $43.87 million (as of on or about August 27, 2022) and 22,580 hold Transferred Custody Assets (that the aggregate value of the transfers at the time of transfers was less than the Statutory Cap) that are worth, in the aggregate, approximately $11.25 million (valued as of August 31, 2022).

In addition, as of the date hereof, approximately 5,000 users hold Withhold Assets (the ‘Withhold Customers’) that are worth approximately $15.33 million (as of August 29, 2022). Of the Withhold Customers, approximately 470 hold Pure Withhold Assets that are worth, in the aggregate, approximately $702,360 (valued as of August 31, 2022) and 3,180 hold Transferred Withhold Assets (that the aggregate value of the transfers at the time of transfers was less than the Statutory Cap) that are worth, in the aggregate, approximately $1.04 million (valued as of August 31, 2022).”

About the Debtors

According to the Debtors: “Built on the belief that financial services should only do what is in the best interest of the customers and community, Celsius is a blockchain-based platform where membership provides access to curated financial services that are not available through traditional financial institutions.”

Corporate Structure Chart

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