When a company files for bankruptcy protection, Section 541 of the Bankruptcy Code creates an estate comprised of "all legal and equitable interest of the debtor in property." On July 15, 2022, Celsius Network LLC filed for relief under Chapter 11 of the United States Bankruptcy Code. At the time, it had approximately 600,000 accounts in its "Earn Program" which allowed account holders to earn interest on certain cryptocurrency deposits. These "Earn Accounts" held over $4 billion in cryptocurrency assets.

When a court-appointed trustee or liquidator is tasked with liquidating an entity, they need to gain possession of all of the entity’s assets. In crypto cases, this task can prove difficult when trying to identify and control all of the entity’s different digital assets and obtain cooperation from the entity’s former operators. Unfortunately, in the case of Three Arrows Capital (“3AC”), the two founders have refused to cooperate with recovery efforts and have absconded to unknown foreign countries.

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Thomas Walper is a renowned name in the market for his wide-ranging expertise on bankruptcies, with recent work including the chapter 11 cases of Toys “R” Us and iHeartMedia.

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Introduction and Background

In a January 5, 2023 opinion from the United States Court of Appeals for the Fifth Circuit, the panel held the Just Energy bankruptcy court erred in exercising jurisdiction over the debtor’s suit to recover Winter Storm Uri payments made to ERCOT. The Fifth Circuit found the underlying issue—i.e., the propriety of ERCOT and PUCT’s pricing—to be precisely the type of controversy that should be decided in the manner carefully prescribed by the Texas legislature, and not be second-guessed by the bankruptcy court.

We are again reminded that the clear terms of a written contract—even if they might yield a surprising result—will govern. For those who don’t bother to read the “clickwrap” terms and conditions when, for example, signing up for the new online game or entrusting millions in crypto currency, those controlling terms may surprise. Parties in any transaction cannot just assume that the “boilerplate”—whether a make-whole in a note, a subordination provision in a credit agreement, or terms and conditions in a customer agreement—will be acceptable.

Judge Martin Glenn of the United States Bankruptcy Court for the Southern District of New York issued a ruling last week in the Celsius Network bankruptcy case addressing whether customer deposits on a cryptocurrency exchange or platform are property of the debtor or property of the customer. The answer, not surprisingly, depends on the Terms of Use governing the account in question. In this case, the Court found that the terms clearly and unambiguously provided that ownership of cryptocurrency assets deposited into “Earn Accounts” resides with Celsius.

Cryptocurrency in Celsius’ Earn Accounts belongs to the bankruptcy estate, and not to the depositors who placed it there, according to a January 4 memorandum opinion from Judge Martin Glenn of the U.S. Bankruptcy Court in the Southern District of New York.

Preference avoidance provisions are a crucial part of the Bankruptcy Code—contained, primarily, in § 547 & § 550.

States also have a preference avoidance statute—for insiders. It’s in the Uniform Voidable Transactions Act (“UVTA)” or in its predecessor, the Uniform Fraudulent Transfer Act (“UFTA)).

The insider preference statute appears to be rarely-used and, apparently, little-known. It reads like this: