The team overseeing the bankruptcy process has put forward a new plan to distribute the remaining assets to affected creditors. The proposal aims to give creditors back up to 90% of their holdings at the time of FTX’s collapse.
Cryptocurrency exchange FTX has introduced an amended proposal to return a substantial portion of funds to creditors impacted by the company’s bankruptcy last November.
The Troubled FTX Exchange
FTX, once one of the largest crypto exchanges, filed for bankruptcy protection after a liquidity crisis prompted mass customer withdrawals. This left FTX unable to meet financial obligations, including returning customer assets that were held on the platform. The total amount missing is estimated at around $9 billion.
The crisis began on Sunday, November 6, 2022, when rival exchange Binance announced it would liquidate its entire FTX token (FTT) holdings due to unspecified “recent revelations.” This sparked an old-fashioned bank run, with customers racing to withdraw funds from FTX. Over $6 billion was withdrawn in just 72 hours. FTX struggled to raise emergency capital to cover withdrawals. After a proposed acquisition deal from Binance fell through, FTX and many affiliated companies filed for Chapter 11 bankruptcy.
New Hope for FTX Creditors
In a promising development, the team overseeing the bankruptcy process has put forward a new plan to distribute the remaining assets to affected creditors. The proposal aims to give creditors back up to 90% of their holdings at the time of FTX’s collapse. The debtors intend to formally file the proposal with the US Bankruptcy Court by December 16, 2023. If approved, it would facilitate the return of billions to FTX users who saw their funds evaporate overnight.
The amended proposal suggests dividing missing customer assets into three separate pools: FTX.com customer assets, FTX.US customer assets, and a general pool for other assets. This categorization aims to simplify distribution.
John. J. Ray III, Chief Executive Officer and Chief Restructuring Officer of the FTX Debtors while expressing his thoughts about the move for repayment, said:
“The proposed settlement of the customer property issues is another major milestone in our case. Together, starting in the most challenging financial disaster I have seen, the debtors and their creditors have created enormous value from a situation that easily could have been a near-total loss for customers.”
Conditions on FTX Creditors Payouts
While creditors may recover up to 90% of holdings, certain conditions apply, customers with less than $250,000 in withdrawals from FTX in the 9 days before bankruptcy (termed “preference settlement”) can accept the settlement without reduction of their claim. In general, all creditors will receive a “shortfall claim” from the general pool to account for missing assets. However, hurdles like taxes and government claims could impact the amount creditors ultimately receive.
In addition, the debtors reserve the right to exclude certain parties from the settlement, like insiders and affiliates involved in commingling funds. Those who manipulated KYC to facilitate withdrawals when halted may also be excluded.
The path forward remains complex, but the proposal marks a significant step for creditors burned by FTX’s stunning downfall. With an amended plan now on the table, creditors can hope to regain a substantial portion of holdings lost in the chaotic bankruptcy.
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