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L Higgins and S Pettigrove

Burn notice: Celsius files over 2,000 clawback actions


In the latest twist in the Celsius bankruptcy saga, the Litigation Administrator of the defunct crypto exchange has filed over 2,000 originating complaints in the US Bankruptcy Court seeking to recover money withdrawn by customers of the exchange in the 90 days prior to bankruptcy. Prior to its fall in 2022, Celsius held approximately USD $25 billion in assets for over 1.5 million users, making it one of the largest crypto-asset custodians in the world.


Celsius, which filed for bankruptcy on 13 July 2022, is relying on broad preference provisions under the US Bankruptcy Code to seek to avoid and recover from customers who made net withdrawals exceeding USD$100,000 in the 90 days prior to bankruptcy. It is also seeking to recover a number of allegedly fraudulent transfers.


A number of customers who did not accept settlement offers made by the Litigation Administrator earlier this year may now be facing clawback actions and other claims. It is likely that Celsius will seek to recover for the value of the cryptocurrency withdrawn by customers at today's prices plus interest and costs. The filings coincide with the two year anniversary of Celsius’s bankruptcy filing and the potential lapse of claims under limitation provisions.


There a number of potential defenses to preference claims under the US Bankruptcy Code. Depending on their individual circumstances, some creditors may be able to rely on one of these clawback defenses to defeat a preference claim, although this remains a live issue which will likely need to be determined by the US Court. For now, the Litigation Administrator is arguing that no defences will apply.


It is likely that Celsius will begin taking steps to serve the 2,000 proceedings on customers in the coming weeks. A number of Australian customers of Celsius have been named in the complaints. Customers affected by the preference actions will need to act swiftly to understand their legal options, including potential defences and settlement strategies.


Piper Alderman is liaising with experienced US counsel on developments in the Celsius bankruptcy and offering assistance to Australian-based customers who may be affected by the recent developments.


Written by L Higgins and S Pettigrove

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