(Bloomberg) -- Failed crypto lender Celsius Network LLC won bankruptcy court approval of its plan to transform into a creditor-owned Bitcoin mining firm as part of a broader proposal to repay customers whose accounts have been frozen for more than a year.

US Bankruptcy Judge Martin Glenn said Thursday he would confirm Celsius’ plan to repay customers through a combination of cryptoassets and stock in the new, publicly listed Bitcoin mining company. Celsius lawyers have said the platform could start distributing assets early next year.

The ruling is a major milestone for Celsius, which went bankrupt last year amid a downturn in digital assets but won enough creditor support for a path through Chapter 11 despite fraud allegations against former executives. 

Federal prosecutors have accused former Celsius Chief Executive Officer Alex Mashinsky of manipulating the firm’s native CEL token and making misleading statements to get customers to invest their assets on the platform. Mashinsky has pleaded not guilty. 

Celsius’s plan to transform into a crypto miner has been met with skepticism from some of its customers and still faces regulatory hurdles. The company has said it must also be approved by the US Securities and Exchange Commission and that Celsius could pivot to a liquidation if the crypto mining proposal falls through.

Judge Glenn has urged the SEC to move quickly in deciding whether or not to approve Celsius’ plan to emerge from Chapter 11 as a publicly listed Bitcoin mining firm.

The ruling approving Celsius’ plan capped a multiweek trial in which individual customers questioned the company’s new management team and expressed frustration with the firm’s bankruptcy plan as well as the cost of Chapter 11 bankruptcy. Customers argued the plan significantly undervalues Celsius’ CEL token, which will essentially be used to dole out digital assets and stock in the new Bitcoin miner to creditors.

Celsius bankruptcy lawyers said CEL was essentially worthless when the crypto firm filed Chapter 11 in 2022, arguing the native token served as a proxy for company stock, which is usually wiped-out in bankruptcy. Judge Glenn said Celsius’ bankruptcy plan averted the need for him to rule on whether CEL constitutes a security, a thorny legal issue that has broader implications on how the crypto industry is regulated in the US.

The bankruptcy is Celsius Network LLC, 22-10964, US Bankruptcy Court for the Southern District of New York (Manhattan).

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