[Crypto-Bankruptcy Series] Quantifying Cryptocurrency Claims in Bankruptcy: Does the Dollar Still Reign Supreme?
by | posted in: Bankruptcy, Chapter 11, Claims Trading, Crypto-Bankruptcy Series, Cryptocurrency, Reorganization, Valuation | 0

By Ingrid Bagby, Michele Maman, Anthony Greene, and Marc Veilleux (Cadwalader Wickersham & Taft LLP)

Note: This post is the second post in a series of posts on bankruptcies of cryptocurrency companies and the emerging issues they pose. The first post can be read here (by Megan McDermott).

This series is being managed by the Bankruptcy Roundtable and Xiao Ma, SJD at Harvard Law School, xma [at] sjd [dot] law [dot] harvard [dot] edu.

Check the HLS Bankruptcy Roundtable periodically for additional contributing posts by academics and practitioners from institutions across the country.

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Ingrid Bagby

Michele Maman

Anthony Greene

Marc Veilleux

Crypto-watchers and bankruptcy lawyers alike have speculated how customer claims based on digital assets such as cryptocurrencies should be valued and measured under bankruptcy law. However, a crypto-centric approach to valuing claims raises a number of issues.  For example, measuring customer claims in cryptocurrency and making “in-kind” distributions of these assets could lead to creditors within the same class receiving recoveries of disparate USD value due to fluctuation in cryptocurrency prices. Moreover, the administrative burden associated with maintaining, accounting for, and distributing a wide variety of cryptocurrencies as part of a recovery scheme or plan may prove costly and complex.  Equity holders also might challenge the confirmability of a plan where valuations and recoveries are based on cryptocurrency rather than USD, as a dramatic rise in cryptocurrency values may  allow for a return of  value to equity.

A recent dispute in the Celsius bankruptcy proceedings as to whether a debtor is required to schedule claims in USD, or whether cryptocurrency claims can be scheduled “in-kind,” may serve as a preview of things to come on these issues. In Celsius, each Debtor’s schedule of unsecured creditors’ claims (Schedule E/F) listed customer claims by the number of various forms of cryptocurrency coins and account types, rather than in USD. Subsequently, a  group of Celsius preferred shareholders filed a motion directing the Debtors to amend their Schedules to reflect customer claims valued in USD, in addition to cryptocurrency coin counts.

Ultimately, the Debtors and the Series B Preferred Holders were able to consensually resolve the motion by the Debtors agreeing to amend their schedules by filing a conversion table reflecting the Debtors’ view of the rate of conversion of all cryptocurrencies listed in the Debtors’ schedules to USD as of the petition date.  However, it remains to be seen whether scheduling of claims in cryptocurrency and providing conversion tables will become the norm in similar cases involving primarily crypto-assets.  Practitioners and creditors should expect further issues to arise in the claims resolution process in crypto-related  cases as claimants and liquidation trustees (or plan administrators) wrestle with how to value claims based on such a volatile asset, subject to ever-increasing regulatory scrutiny.  For now, the bankruptcy process continues to run on USD.

The full article can be read here, and the memo is also republished by National Law Review, Lexology and Mondaq.

 

TCEH Bankruptcy: SDNY Transfers Delaware Trust Company v. Wilmington Trust N.A. Intercreditor Dispute to Delaware Bankruptcy Court, Reaffirming Broad View of Bankruptcy Jurisdiction
by | posted in: Bankruptcy Administration and Jurisdiction | 0

By Mark Ellenberg, Howard Hawkins, Ivan Loncar, Ellen Halstead, Michele Maman and Tom Curtin of Cadwalader Wickersham & Taft LLP

In Delaware Trust Company v. Wilmington Trust N.A. the United States District Court for the Southern District of New York found that a complaint based on an intercreditor agreement among secured creditors of Texas Competitive Electric Holdings LLC constituted a core proceeding.  Accordingly, the court denied a motion to remand the case to New York state court, where it had originally been filed, and also transferred the case to the US District Court for the District of Delaware.  The case was subsequently referred to the bankruptcy court presiding over the TCEH bankruptcy cases.  Plaintiff had alleged that the dispute, which involved allocation of adequate protection payments ordered by the Delaware Bankruptcy Court, was an intercreditor dispute that turned solely on the interpretation of a prepetition intercreditor agreement and, accordingly, should be decided in state court.  As such, the issue before the District Court was whether a New York court or the Delaware Bankruptcy Court should resolve the intercreditor dispute.

The District Court ruled that the dispute was core because the dispute would have no meaningful existence but for TCEH’s bankruptcy filing, as the ability to receive adequate protection derives solely from the Bankruptcy Code.  In addition, the Court found that the dispute was core because the intercreditor issue would likely arise again in the context of plan confirmation.   The decision is important because it reaffirms the often-challenged principle that contractual disputes solely among creditors may nonetheless qualify as “core” proceedings where, as here, the underlying dispute could only arise in the context of a bankruptcy proceeding.

For our full memo, please click here.