Celsius Preferred Stock Holders Vs. Unsecured Creditors: Understanding the Conflict

On April 1st, the Official Committee of Unsecured Creditors of Celsius (UCC) stated that it had appealed against Judge Glenn’s decision to support preferred stock holders in client claims. The UCC believed that this was a wrong decision and should be corrected.

The official committee of Celsius unsecured creditors appealed Judge Glenn’s decision to support preferred stock holders in client claims

As revealed on April 1st, 2021, the Official Committee of Unsecured Creditors (UCC) of Celsius has filed an appeal against Judge Glenn’s decision to support preferred stockholders in client claims. According to UCC, this decision was erroneous and needs to be corrected. This article will provide an in-depth insight into this conflict, highlighting the arguments made by both parties to help readers understand the matter better.

Understanding the Conflict

Celsius is a financial services company that offers lending and borrowing services based on cryptocurrency. Like most companies, it raises capital to finance its operation by issuing stocks. The stocks are of two types- common and preferred stocks. While common stock represents ownership in the company, preferred stocks are a type of equity security that gives shareholders a higher claim on assets and income than common stockholders.
The recent conflict arises between preferred stockholders and unsecured creditors of Celsius. Unsecured creditors are institutions or individuals that have extended credit to Celsius without collateral. In case of default by Celsius, these creditors can lay a claim on the company’s assets. This is where the conflict starts.

Preferred Stockholders Vs. Unsecured Creditors

In 2020, Celsius issued $20 million worth of preferred stock. The company did not use the money for its operational needs but instead loaned it to third parties at a higher interest rate. Preferred stockholders argue that in case of default by Celsius, they have a superior claim over the loan proceeds as compared to unsecured creditors. They further contend that Judge Glenn’s decision in their favor was fair and just.
On the other hand, UCC believes that this decision was erroneous and needs to be corrected. They argue that the preferred stock was not issued to raise capital for the company but to fund external loans, which should not be prioritized over unsecured creditors’ claims. They further contend that the company must meet its obligation to unsecured creditors first before reimbursing the preferred stockholders.

The Way Forward

This conflict presents a complex web of legal and financial issues. The court is yet to decide on UCC’s appeal, which will determine the course of action. Nonetheless, this issue brings up a crucial topic of discussion on the relevance of preferred stocks and the priority of claims in case of default.
In conclusion, the conflict between preferred stockholders and unsecured creditors of Celsius presents an intricate issue of financial claims and obligations. The decision on UCC’s appeal will help shed light on the matter and provide guidance for similar cases in the future.

FAQs

Q. What are preferred stocks?
A. Preferred stocks are a type of equity security that gives shareholders a higher claim on assets and income than common stockholders.
Q. Who are unsecured creditors?
A. Unsecured creditors are institutions or individuals that have extended credit to Celsius without collateral.
Q. What will happen if the court upholds Judge Glenn’s decision?
A. If the court upholds Judge Glenn’s decision, then preferred stockholders will have a higher claim over the loan proceeds in case of a default by Celsius.