Crypto traders are contemplating a potential legal challenge to Celsius' reorganization plan, alleging that it unfairly prioritizes certain creditors at the expense of others, according to sources familiar with the situation who spoke to The Block. The current plan, they argue, significantly reduces the potential recoveries for customers who hold Loan accounts with debts owed by the lender's estate.

Creditors who have borrowed from Celsius are seeking advice from "several" lawyers to assess the feasibility of appealing the reorganization plan, as per one source cited by The Block. These creditors aim to recoup a portion of the funds they had used as collateral on the now-defunct platform, the same source, who is a Loan creditor, revealed.

It remains uncertain whether Loan users will be able to file an appeal, given the deadlines stipulated by the Bankruptcy Code, as explained by Weil Restructuring. Generally, such appeals must be lodged within "14 days after the entry of the judgment, order, or decree being appealed," in accordance with the federal rules of bankruptcy procedure. However, if changes to the plan are deemed necessary, the process for implementing them could be intricate.

Celsius Loan creditors have indicated that they do not yet have a definitive timeline for pursuing a potential legal challenge, emphasizing that they are still in the initial stages of exploring their options. According to a source cited by The Block, major Loan creditors of the lender would finance any forthcoming legal action undertaken by the group.

This move by creditors to contest the handling of their claims comes amidst a resurgence in digital asset prices, raising pivotal questions for bankruptcy courts and their stakeholders regarding the true value of creditors' crypto holdings and the manner in which these assets should be returned.

Chief Judge Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York sanctioned Celsius’ restructuring plan in November last year, following the lender's declaration of bankruptcy in July 2022. However, the implementation of this plan resulted in lower-than-anticipated payouts for Celsius Loan customers, with some creditors alleging that they received less than 30% of their expected entitlements, according to one creditor.

According to a source close to the matter, Celsius Loan account holders are considering filing an appeal based on two primary assertions.

The first contention posits that the court failed to ensure "fair and equal" treatment between two categories of creditors: users of Celsius Earn, an interest-bearing crypto account, and customers of Celsius Loan, a collateralized crypto loan service. A creditor informed The Block that claims from Earn creditors were processed earlier this year, preceding those of Loan customers, which led to higher payouts for users of the company's flagship interest-generating product.

The second contention challenges an order issued on December 27, 2023, which stipulates that Celsius’ new mining entity be funded with $225 million from the lender's bankruptcy estate. Some Loan creditors argue that this funding should have been allocated towards enhancing the recoveries of creditors instead, as noted by one creditor.

As of the time of reporting, Celsius' legal representatives had not responded to The Block's request for comment. It is important to acknowledge, however, that the valuation and disbursement of a bankruptcy claim involve numerous complexities, making direct comparisons of creditors’ recoveries challenging.