Can Voyager Digital & Celsius Ties With Kirkland & Ellis Law Firm Restructure Save Company?

2 min read

As crypto’s bear market drags on, ties between the industry’s biggest players become more evident. Apparently, their legal troubles have also been subject to that co-dependence.   

Insolvent crypto lenders Celsius, Voyager Digital and Babel Finance have each filed for Chapter 11 bankruptcy via Kirkland & Ellis, a behemoth corporate law firm. 

The three crypto lenders chose Kirkland for its past successes in Chapter 11, legal experts say, and Kirkland took on the three cases to give itself a reputation as a leader in crypto firm restructurings — which appear to just be getting started. 

Kirkland has long been a top bankruptcy firm, so for embattled crypto lenders, “it makes sense to choose the best,” Jeffrey Blockinger, general counsel at Quadrata, said in an email. Kirkland led the two shortest Chapter 11 restructurings in history, both clocking in under 24 hours.

But in other cases, such as its ongoing representation of Toys R Us, Kirkland has engaged in years-long negotiations on behalf of its clients. Celsius, Voyager and Babel Finance may be hoping their cases fall on the latter end of the spectrum, experts say.

“My guess is they’ve chosen Chapter 11 because they’re hoping the price of crypto goes back up, which takes them out of the situation they’re in. It’s like a delay tactic,” Kimberly Houser, a clinical assistant law professor at the University of North Texas, told Blockworks.

If the three lenders each pursue the same wait-it-out restructuring strategy, choosing Kirkland should make legal operations easier.

Firms commonly handle multiple cases in a given specialty because it is “more efficient as the attorneys often do not have to duplicate research,” Carol Goforth, law professor at the University of Arkansas, said in an email. 

Voyager and Celsius’ initial court filings both list Joshua Sussberg as their lead attorney. The portions that explain crypto terminology are identical. Large swaths of the two companies’ overviews of their Chapter 11 filings are directly copied.

The first day declarations, from Celsius and Voyager CEOs Alex Mashinsky and Stephen Erlich, respectively, both say factors largely beyond the companies’ control caused a “run on the bank.”

Celsius, Voyager and Babel Finance each filed for Chapter 11 bankruptcy in the Southern District of New York — despite operations in multiple jurisdictions. 

Kirkland likely expects “some sort of favorable treatment” from the district court if it filed each bankruptcy there, Houser said, adding that future Chapter 11s may be filed elsewhere, such as Delaware, if the court rules unfavorably toward the crypto lenders.

The court will rule on practices without much precedent in bankruptcy proceedings, Will Brannan, partner at Lowenstein Sandler, told Blockworks in an email, citing “on and off-platform custodied cryptocurrency assets, rehypothecation activities, cryptocurrency lending implications, as well as the ramifications of customer participation in ‘earn’ and ‘yield’ product offerings” as novel issues for the court.

Successfully navigating the complexities of the three lenders’ Chapter 11s would give Kirkland “a chance to be at the forefront of these emerging issues,” Brannan said. 

Kirkland taking on the three lenders’ cases to establish its reputation in crypto would seem a partial vindication of Celsius, which last week was sued by a former investment manager alleging financial mismanagement and fraud.

Kirkland would not want to represent Celsius if the law firm “believes there’s fraud involved,” according to Houser.

“Even though people are really upset about this, I don’t see any indication that this is fraud,” she said. 

Given the volatility of the crypto market, Houser is uncertain whether rising cryptoasset values will save Celsius, Voyager and Babel Finance. But a prolonged crypto market slide could also benefit the companies in their Chapter 11 negotiations.

“If the creditors realize crypto values are not increasing, the creditors could see that the longer they wait the less value the crypto has and agree to pennies on the dollar” in repayment from the lenders, Houser said.

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