In a significant development for the cryptocurrency world, bankrupt crypto exchange FTX has announced an amended proposal that could potentially return up to 90% of its assets to creditors. This proposal emerged after the stock market’s turbulent crash last November. Here are the details…
FTX proposes plan during bankruptcy process
Debtors overseeing the bankruptcy process are expected to formally submit this plan to the U.S. Bankruptcy Court by December 16, 2023. The proposal takes a groundbreaking approach to resolving the problem of lost customer assets, classifying them into three separate pools based on the circumstances at the start of Chapter 11 cases. The first pool is designated for assets reserved for FTX.com customers, while the second is for FTX.US customers. Finally, a “Public Pool” houses other assets. Specifically, the proposal states that customers whose preferred settlement amount is less than $250,000 can accept the settlement without any reduction in their claims or payments.
Privileged settlement, which accounted for 15% of customer withdrawals in the nine days before the stock market crash, plays a crucial role in determining compensation. However, the road to recovery for creditors is fraught with potential obstacles. Factors such as taxes, government demands, and fluctuations in token prices may affect the actual amount creditors receive. It has also introduced provisions that may exclude persons associated with the exchange, such as insiders, affiliates and customers, who are believed to have knowledge of the commingling and misuse of debtors, customer deposits and company funds. Individuals who may have changed their KYC information to facilitate withdrawals when the exchange ceased operations may also face different payment terms that do not reflect the fair value of their claims.
“Customer gap” compromise
In a separate statement, FTX said it had reached a proposed agreement with key creditors to resolve customer ownership disputes and finalize an amended payment plan. This settlement, called the “Customer Deficit Settlement,” was agreed to by FTX debtors, the executive committee of the ad hoc committee of non-U.S. customers, the official committee of unsecured creditors, and the default class representatives. Commenting on this development, FTX Chief Executive Officer John J. Ray III said, “The proposed settlement on customer property issues is another important milestone in our litigation. “Starting with the toughest financial disaster I have ever seen, debtors and their creditors together created tremendous value from what could have been a near-total loss for customers,” he said.
The proposed settlement is part of an amended reorganization plan scheduled to be submitted by December 16, 2023. If approved by the bankruptcy court, it will create a “Deficiency Claim” to offer eligible customers a way to resolve customer preference risks for an agreed-upon amount. The estimated shortfall demand is quite high, at approximately $8.9 billion for FTX.com and $166 million for FTX US. If the amended plan, which includes the Customer Gap Settlement, is approved by the bankruptcy court by the end of the second quarter of 2024, it is anticipated that both FTX.com and FTX US customers will collectively receive more than 90% of the worldwide distributable value. However, it should be noted that FTX.com customers may face greater losses compared to FTX US customers.
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