FTX, a defunct crypto exchange, has received strong preliminary approval from creditors for its amended reorganization plan under U.S. bankruptcy law. With over 95% of creditors voting in favor of the plan, representing 99% of claims by value, the plan is likely to surpass the necessary thresholds for approval. The plan aims to fully compensate non-governmental creditors by paying 100% of their bankruptcy claims, plus interest. The reorganization plan, expected to be finalized by October 7, has been well-received by customer classes from both FTX US and FTX.com.
FTX’s Chief Restructuring Officer and CEO, John Ray III, has highlighted the innovative structure of the plan, which effectively resolves complex disputes with various governmental and private stakeholders. Despite the overall support for the reorganization plan, some FTX customers have expressed opposition due to concerns about the valuation of their cryptocurrency holdings. Customers fear that being reimbursed in cash would create a taxable event, leading to additional financial burdens. Sunil Kavuri, a customer advocate, raised this concern after FTX filed an updated plan on August 2, prompting objections from a group of FTX creditors.
The road to reorganization for FTX has been challenging, with creditors initially objecting to the exchange’s repayment plan due to potential taxable events from cash repayments instead of digital assets. FTX then sought creditor votes on a liquidation plan to wind down payments and compensate customers, following objections raised by creditors. Delaware Judge John Dorsey authorized FTX bankruptcy advisors to solicit creditor votes to gather feedback from previously unengaged creditors, leading to the development of the reorganization plan with significant financial implications.
In June, it was reported that FTX would likely offer customers 119% of their assets’ value as of the day the exchange filed for Chapter 11, with other creditors potentially receiving up to 143% of their owed assets. However, customers objected to this proposal, demanding higher repayments due to the recent spike in cryptocurrency prices. The restructuring process for FTX is further complicated by legal challenges, including the founder and former CEO Sam Bankman-Fried being sentenced to 25 years in prison and fined $11 billion for financial fraud. Additionally, FTX and its affiliate, Alameda Research, reached a settlement with the CFTC, requiring them to repay $12.7 billion to creditors.
Overall, FTX’s amended reorganization plan has received overwhelming support from creditors, indicating that the plan is likely to be approved. Despite some customer opposition regarding the valuation of their cryptocurrency holdings, the plan aims to fully compensate non-governmental creditors and resolve disputes with various stakeholders. The ongoing restructuring efforts face challenges due to legal issues and objections from customers, highlighting the complexities involved in the process. The finalization of the reorganization plan by October 7 will be a crucial step in FTX’s efforts to address its bankruptcy and move towards resolution.
