By
Chimamanda U. Martha
April 19th, 2024
In the case of FTX, the tug-of-war between the US and Bahamian regulators may elongate all bankruptcy proceedings.
In just about a week after the FTX Derivatives Exchange filed for bankruptcy protection in the United States, it is becoming quite obvious that the process will be a more complicated one. According to court filings, liquidators appointed by the Bahamian Supreme Court said the FTX empire has its mother company, FTX Digital Markets located and operated in the Bahamas.
Because of its core affiliations with the Bahamas, Brain Simms, a Bahamas-based lawyer and one of the attorneys appointed to handle the bankruptcy proceedings said FTX was not authorized to file for bankruptcy in the US. The Bahamian liquidators have filed for Chapter 15 Bankruptcy in the Southern District of New York (SDNY) on behalf of FTX as it seeks to get involved in the FTX bankruptcy proceedings.
Chapter 15 bankruptcy is the filing that is resorted to when cross-border negotiation is involved. In addition to saying FTX was not authorized to file bankruptcy in the US, Simms said he “reject[s] the validity of any purported attempt to place FTX affiliates in bankruptcy.”
The Bahamian liquidator’s Chapter 15 filing is not requesting the court to annul the US bankruptcy that was filed by the trading platform, but that it should recognize the legal actions being made by the Bahamian lawyers. The lawyers argued that how the US court proceeded with the bankruptcy will have a bearing on the other US-controlled entities.
“Despite the seemingly complex structure of the FTX Brand companies, the entire FTX Brand was ultimately operated from a single location: The Bahamas,” Simms wrote in his declaration. “All core management personnel likewise were located in The Bahamas.”
The Bahamian regulators also want the US courts to entrust FTX’s assets in the US to the Bahamian handlers.
FTX Bankruptcy: Playing the Long Game
Bankruptcy proceedings are a very lengthy process, one that may take months and even years to complete. In the case of FTX, the tug-of-war between the US and Bahamian regulators may further elongate the whole process to the detriment of creditors.
In its bankruptcy filing, the embattled trading platform said it has over 100,000 creditors, however, that figure has been significantly adjusted to about 1 million earlier this week. The company said it has $10 billion to $50 billion worth of assets and liability within that range also.
The downfall of FTX took the industry by surprise as the whole collapse happened in a little over a week. The company, valued at $32 billion at the start of November was the second largest digital currency trading platform after the Binance exchange, but a liquidity crunch, precipitated by Binance’s CEO, Changpeng ‘CZ’ Zhao’s declaration that he will offload FTX Tokens (FTT) worth over $500 million.
Since the collapse of FTX, the industry has been awakened with exchanges doing a lot to regain the confidence of their customers. While the entire FTX bankruptcy proceeding will be a long game for the exchange’s creditors, it is certainly also going to be a long one for the entire ecosystem.