Category: International
Clear ResultsBankruptcy
Celsius Litigation: Framework for Valuing Digital Assets in Avoidance Actions
In a recent decision addressing a question raised by the crypto winter, the United States Bankruptcy Court for the Southern District of New York outlined a framework for valuing digital assets recovered through bankruptcy avoidance actions. The ruling is noteworthy because it confronts an issue that traditional bankruptcy jurisprudence has rarely faced: volatile, highly liquid assets that can dramatically increase or decrease in value in a short period of time. As Judge Glenn observed, digital assets differ from traditional property because they are easily transferable, actively traded, and subject to significant market fluctuations. In the Celsius litigation, the court had to determine: “1. Is the Litigation Administrator entitled to recover (a) the allegedly transferred digital assets if they remain in the applicable Defendant’s possession, custody or control or, alternatively, (b) their value? 2. If the Litigation Administrator is entitled to recover the value of any allegedly transferred digital assets, what value is the Litigation Administrator entitled to recover if the allegedly transferred digital assets: i. Have appreciated since they were transferred from Celsius? ii. Have depreciated since they were transferred from Celsius?” In re Celsius Network, LLC, No. 22-10964-MG, 2026 WL 1999187, at *1 (Bankr. S.D.N.Y. July 10, 2026) The litigation administrator claimed that the appropriate measure of damages is either (1) the return of the digital asset or (2) the market price of the asset if the asset appreciated. In the event the transferred asset has depreciated, the litigation administrator claimed that the court should award the market price of the digital asset on the date of the transfer. Section 550 of the Bankruptcy Code allows a trustee or estate representative to recover either the property transferred or, if the court so orders, the value of that property. The Bankruptcy Code, however, does not specify how value should be measured when the property fluctuates in price after the transfer. Judge Glenn therefore turned to the statute's underlying purpose: restore the estate to the position it would have occupied had the transfer never occurred. The Court's Three-Part Framework Judge Glenn ultimately adopted a practical framework designed to balance three competing concerns: Making the estate whole Preventing preference defendants from profiting from avoidable transfers Avoiding unfair or potentially limitless liability resulting from cryptocurrency market volatility The court held: For depreciating assets, the estate may recover the transfer-date value, regardless of whether the defendant still holds the asset. For appreciating assets still held by the defendant, the estate may recover the asset itself. For appreciating assets that have been sold, the estate may recover the sale price obtained by the defendant. The defendant bears the burden of proving both that the asset was sold and the amount for which it was sold. If the defendant cannot establish those facts, the estate may recover the judgment-date value. This framework represents an effort to tailor traditional avoidance principles to the realities of cryptocurrency markets. The Decision Regarding Depreciating Assets is Based on Well-Established Precedent Judge Glenn's analysis began with what he viewed as the easier question: assets that declined in value after transfer. The court emphasized that the purpose of § 550 is restorative rather than punitive. If a cryptocurrency worth $100,000 at the time of transfer later falls to $10,000, requiring the estate to accept only the depreciated asset or its current value would leave the estate substantially worse off than if the transfer had never occurred. In effect, the bankruptcy estate would bear the entire market loss. Relying on prior fraudulent transfer and avoidance precedent, Judge Glenn concluded that transfer-date value is the proper measure for depreciating property because it restores the estate to the financial position it would have occupied absent the transfer. The court reasoned that allowing only recovery of the current value would undermine the statute's remedial purpose. Why the Court Rejected Judgment-Date Value for Appreciating Crypto The more difficult issue involved assets that appreciated after transfer. The litigation administrator argued that appreciation should inure to the benefit of the estate because, had the transfer never occurred, the estate would have retained the asset and potentially realized the upside. The argument found support in cases involving real estate and other appreciating property. Judge Glenn, however, distinguished digital assets from many traditional forms of property. He noted that cryptocurrency is extraordinarily liquid, highly volatile, and can be sold almost instantaneously. Moreover, unlike real estate, many transferees no longer possess the specific assets that were transferred. The court was particularly concerned that imposing judgment-date valuation on a defendant who sold cryptocurrency years earlier could create what it described as "essentially limitless liability." A customer who withdrew and sold Bitcoin long ago could be exposed to damages tied to market increases occurring long after the asset had been disposed of. The court concluded that such a result would be inequitable. Judge Glenn also observed that there was no evidence that Celsius would necessarily have held the assets through the period of appreciation. The company may have sold, rebalanced, hedged, or otherwise deployed the assets. Awarding judgment-date appreciation therefore risked providing the estate with a windfall rather than merely restoring it. The Court's Middle Ground Rather than adopting either transfer-date value or full judgment-date value as a universal rule, Judge Glenn crafted a middle-ground approach. If a defendant still possesses an appreciating digital asset, the estate may recover the asset itself and thereby receive the benefit of appreciation. That result mirrors what would have occurred had the transfer never happened. If the defendant sold the asset, however, recovery is limited to the benefit actually realized through the sale. The estate receives the sale proceeds, including any appreciation captured by the defendant, but not speculative gains that accrued after disposition. In the court's view, this approach honors Congressional concern regarding a "wait-and-see" strategy by transferees while avoiding exposure to unlimited liability based solely on subsequent market movements. Practical Takeaways for Digital Asset Holders Judge Glenn's decision represents one of the first comprehensive attempts to address how cryptocurrency should be valued in bankruptcy avoidance actions. Rather than applying a rigid valuation date, the court adopted a flexible framework that distinguishes between appreciating and depreciating assets and considers whether the cryptocurrency remains in the transferee's possession. The ruling seeks to restore the estate and avoid imposing limitless liability driven solely by crypto market volatility. For digital asset holders, the message is clear: maintain thorough records, understand the risks of later-avoidable transfers, and recognize that post-transfer appreciation may not always belong to the party currently holding the coins.
August 31, 2026
International
International Trade: Service of Process and Default Judgments Can Reach You in Unexpected Ways
A recent Second Circuit decision offers a valuable lesson for foreign companies dealing with U.S. counterparties: a plaintiff may effect service of process through a collection agent, even if that agent was not expressly authorized to accept service of process on the company’s behalf. Ryniker v. Sumec Textile Co. Ltd., 177 F.4th 365 (2d Cir. 2026). The Second Circuit reinstated a default judgment against a Chinese creditor, Sumec Textile Company Limited, following a convoluted procedural path from bankruptcy court to district court, then bankruptcy court again and a rare direct appeal to the Second Circuit. As they say, the devil is in the details. A closer look at the background helps explain why the court reached that result. Décor Holdings, Inc. and its affiliates were sellers of decorative fabric that filed voluntary Chapter 11 petitions on February 12, 2019. They listed Sumec Textile Company Limited, a Nanjing, China-based textile manufacturer, as their second-largest unsecured creditor. Sumec Textile Company Limited held an export credit insurance policy with China Export & Credit Insurance Corporation, known as Sinosure, and submitted an insurance claim to Sinosure for the unpaid balance owed by the debtors. Before Sinosure paid on the insurance claim, Sumec Textile Company Limited executed a Collection Trust Deed authorizing Sinosure to collect, “on our behalf,” the “full amount” of the debt owed by the debtors, $3,029,719.52, and granted Sinosure “full power” to exercise collection rights and remedies in Sumec Textile Company Limited’s name or Sinosure’s own name. Sinosure then hired Brown & Joseph, LLC, a U.S. collection agency, to collect the debt. Sinosure’s instructions to Brown & Joseph granted it “full power” to exercise collection rights and remedies for “amicable debt collection.” The Collection Trust Deed, however, did not authorize Sinosure to accept service of a summons or complaint on Sumec's behalf or act in any way for Sumec. To assist in debt collection, Sinosure hired the Detroit-based collection agency Brown & Joseph LLC (“B&J”). The scope of B&J's authority and services was set forth and limited by a Trust Deed and Letter of Instruction dated March 4, 2019. There is no language in the Trust Deed and Letter of Instruction that authorizes B&J to accept service of process on behalf of Sumec. B&J filed a proof of claim in Décor Holdings, Inc.’s bankruptcy on behalf of Sumec. The dispute arose when a litigation administrator later commenced an adversary proceeding seeking to recover payments made to Sumec and to disallow Sumec’s claim. The summons and complaint were mailed to Sumec “in care of Brown & Joseph” at the address listed on the proof of claim. Brown & Joseph engaged with the plaintiff after service, stating it was reviewing the matter with “our client and the creditor,” referencing an ordinary course defense, and noting that Sumec believed the payments “were made in the ordinary course of business.” Despite these communications, Sumec never appeared, and a default judgment was entered. The central issue on appeal was whether Brown & Joseph qualified as an “agent authorized by appointment or by law to receive service” under Bankruptcy Rule 7004, even though the governing documents did not expressly authorize it to accept service of process. The Second Circuit answered yes, holding that Brown & Joseph had implied actual authority to accept service on Sumec’s behalf. The Court emphasized that actual authority is not limited to what is expressly stated. It includes authority “to perform acts necessary or incidental to achieving the principal’s objectives, as reasonably understood from the principal’s manifestations.” Here, Sumec had authorized Sinosure to collect the “full amount” of the debt, and Sinosure had in turn authorized Brown & Joseph to do the same. By filing a proof of claim in Sumec’s name and designating itself as the recipient for notices, Brown & Joseph positioned itself as the functional representative of the creditor in the bankruptcy case. Critically, the adversary proceeding did not exist in isolation. It sought not only to recover alleged preferences but also to disallow the very claim Brown & Joseph had been authorized to pursue. In that context, they rejected the argument that express authorization to accept service was required. Instead, it reasoned that authority to recover the “full amount” necessarily included authority to receive notice of litigation that could reduce that recovery. As the Court put it, actual authority may be implied from the principal’s objectives, and here those objectives made service on Brown & Joseph appropriate. The Court therefore reinstated the default judgment. For foreign creditors, the implications are significant. This decision underscores that delegating collection authority and allowing a default to be entered may carry material negative consequences that extend beyond simple debt recovery. Even where agency documents state that the agent does not have authority to accept service, a court may find otherwise based on the scope of the assignment and the surrounding circumstances. Interestingly, in this case, the creditor had posted a bond to stay enforcement during the appeal process and the reinstatement of the default judgment clears the path to satisfying the judgment quickly. The takeaway is straightforward but important: foreign companies should carefully define and, where appropriate, limit the authority granted to insurers, factors, and collection agents. Absent clear boundaries and active oversight, service of process on a U.S. agent may be sufficient to bind a foreign creditor even where the creditor has not expressly authorized the agent to accept service and the agent has affirmatively informed the plaintiff that it lacks such authority.
June 29, 2026
International
The New European Supply Chain Regulations
In February 2022, the European Commission issued a new proposed Directive to all 26 EU countries setting forth a new legal framework to govern human rights and environmental concerns and issues in vertical supply chains. The European Parliament and the Council of the EU must still adopt this proposed Directive. Adoption is expected within about one year (2023), and each EU member state will have two years to implement the final Directive into its national legislation. The Directive will set minimum but not maximum standards for national legislation. Some countries in the EU have already passed initial supply chain legislation. Most so far are of limited scope, but a new extensive German statute becomes effective January 1, 2023. While the German law will have to be modified to meet the standards outlined in the final EU Directive, we can assume the remaining EU countries will pass legislation similar to the German law since it is already so extensive and detailed. Attached is a comparison of the various legislative schemes as currently established. Since compliance with the existing German statute, if applicable, and the future EU Directive criteria, when implemented, will be so demanding, we have prepared an initial guide to serve as a starting point for companies that expect to comply. This guide should provide a reasonable basis for developing a compliance program. Click HERE to read the guide. For more information, contact Steven Thal.
December 1, 2022
