- FTX’s bankruptcy proceedings are nearing completion, with Judge Dorsey approving the proposed repayment plans.
- Creditors are set to receive up to 118% of their locked funds in U.S. dollars.
Creditors of the bankrupt FTX Derivatives Exchange can finally find some relief. After two years, U.S. bankruptcy judge John Dorsey has approved the company’s reorganization plan.
This has enabled it to repay billions to creditors. It marked a crucial step in winding down operations and compensating affected customers.
FTX Bankruptcy Plan Greenlit, Creditors to Receive Full Compensation
On October 7, Judge Dorsey approved FTX’s liquidation plan in the U.S. Bankruptcy Court for the District of Delaware.
The plan outlines that 98% of FTX creditors are expected to receive about 118% of their approved claims. They will receive the claim within 60 days of the plan’s effect.
FTX estimates that between $14.7 Billion and $16.5 Billion will be available for distribution. The amount would be sourced from various global asset recoveries.
John J. Ray III, FTX’s CEO and Chief Restructuring Officer, stated,
“We are set to return 100% of claims plus interest for non-governmental creditors through what will be the largest and most complex asset distribution in bankruptcy history.”
He added that they are finalizing agreements with specialized agents to ensure safe and swift recoveries for customers worldwide.
“The Court’s approval of our plan is a crucial step toward distributing funds to customers and creditors.”
The plan’s approval comes less than two years after FTX’s dramatic collapse in November 2022. This sent shockwaves through the cryptocurrency sector. Since then, a dedicated team has been working to restore FTX’s financial records and recover assets globally.
Moreover, U.S. bankruptcy judge Dorsey oversaw the case. The judge praised the reorganization effort as “a model case for handling a complex Chapter 11 bankruptcy.”
The distribution process is anticipated to be complex. It involves creditors from over 200 jurisdictions.
While the plan guarantees full repayment, some customers may still be disappointed with lost opportunities. Notably, since FTX filed for bankruptcy, cryptocurrency prices have rebounded significantly, with Bitcoin rising about 260%.
Furthermore, the FTX bankruptcy has drawn significant attention from the crypto industry and financial regulators. This follows the criminal conviction of FTX founder Sam Bankman-Fried. He was sentenced to 25 years in prison for fraud earlier this year.
In response to these developments, Bitcoin’s price dropped more than 3.9% on Monday. However, it remains comfortably above the key threshold of $60,000.
As of Tuesday, one Bitcoin was priced at $62,405. It highlighted the ongoing impact of FTX’s situation on the market.
Not All Creditors Support the Plan: FTX Stakeholders Favor In-Kind Settlements Over Cash
Critics of the reorganization plan have raised concerns. The plan aims to reimburse creditors for the assets in their FTX portfolios. However, it fails to account for the appreciation of tokens between November 2022 and 2024.
Sunil Kavuri is an FTX creditor who attended the bankruptcy hearing. He argued in September that users might only recover 10–25% of their cryptocurrency’s value.
When FTX declared bankruptcy in 2022, Bitcoin was priced at around $16,000 but has surged to over $63,000. As a result, millions of users have been locked out of access to billions of tokens for nearly two years.
Kavuri believes that in-kind payments would be a more beneficial solution. David Adler, a lawyer representing several creditors, supported his view. He noted that cash payments could lead to substantial tax liabilities for those receiving them.
With Judge Dorsey’s approval of the current plan, it seems unlikely that FTX will revisit the possibility of in-kind settlements.
FTX Recovers Donations and Sells Crypto Assets to Generate Funds
FTX needed to recover donations made by its CEO, Sam Bankman-Fried, to make user repayments feasible.
The exchange also unstaked assets, particularly Solana, and conducted a $3.5 Billion Over-the-Counter (OTC) sale of crypto assets. Additionally, FTX divested part of its investment in the AI company Anthropic.
FTX CEO John Ray emphasized, “Today’s success is due to the relentless efforts of our team of professionals, who have rebuilt FTX’s financial records from scratch and recovered billions in assets globally.”
The reorganization plan garnered strong support from creditors. Over 94% of the FTX Dotcom customer class backed it. This represented claims totaling $6.83 Billion. These creditors are expected to receive their funds by the end of this year.
Meanwhile, there has been little discussion about FTX 2.0, a potential relaunch of the exchange. Some are advocating for reviving the platform.
However, others, including Kraken co-founder Jesse Powell, have voiced opposition. They have argued that starting anew would only worsen the situation.
Ongoing Legal Battles and Regulatory Scrutiny Amid Sam Bankman-Fried’s FTX Bankruptcy Proceedings
As efforts continue to repay creditors of the bankrupt FTX, the situation surrounding its former CEO, Sam Bankman-Fried, remains complex.
Currently serving a 25-year prison sentence, he recently filed a 102-page appeal against his conviction. He claimed Judge Lewis Kaplan exhibited bias during the trial.
Bankman-Fried has appointed new legal counsel to replace his previous attorneys. He argued that he was unjustly barred from informing the jury about potential customer fund recovery through bankruptcy.
In a significant development, the U.S. Commodities Futures Trading Commission (CFTC) reached a $12.7 Billion settlement after a 19-month lawsuit.
This includes $8.7 Billion in restitution and $4 billion in disgorgement without pursuing a civil penalty. FTX has recognized its substantial liabilities to the CFTC as a key creditor in the Chapter 11 proceedings.
Additionally, the SEC raised concerns about FTX’s proposed creditor payment plan, particularly regarding using stablecoins. The SEC’s motion does not address the legality of the transactions. However, it reserves the right to challenge any involving crypto assets.
Disclaimer
In this article, the views, and opinions stated by the author, or any people named are for informational purposes only, and they don’t establish the investment, financial, or any other advice. Trading or investing in cryptocurrency assets comes with a risk of financial loss.
Dr. Naveen Singh is an entrepreneur with achievements in sports, academics, healthcare, innovation, blockchain technology, telecommunications, and philanthropy. He is the Co-Founder and Chief Executive Officer (CEO) of Inery, the first layer-1 blockchain programmed for database management. With Inery, he aligns with his vision of a new paradigm for data to empower web3 and complete decentralization.