FTX Seeks Court Approval for Creditors to Choose Repayment Method Amid Liquidation Process
Summary:
FTX, a major cryptocurrency exchange that declared bankruptcy in November 2022, has obtained court approval to poll its creditors about their preference for repayment: in cash or in cryptocurrency. Many creditors desire compensation in cryptocurrency, which accounts for the crypto market's significant market cap surge since the exchange's downfall. However, even if creditors vote in favor of crypto repayments, the court is not obliged to approve it. Notably, FTX has recovered $11.4 billion since filing for bankruptcy, with the total expected to rise to $12.6 billion by October 31, 2022.
FTX has obtained judicial confirmation to consult with its creditors on their preferred method of receiving their reclaimed funds – either in the form of cash as part of FTX's existing liquidation procedure, or in cryptocurrency at the current market rate. On June 25, FTX's voting plan was given the go-ahead by US Bankruptcy Judge John Dorsey. A number of creditors found FTX's May liquidation proposal – a 118% return to 98% of creditors with claims less than $50,000, to be paid at the dollar value of the assets at the time of FTX's November 2022 bankruptcy filing – to be unsatisfactory.
Nonetheless, many are hoping for compensation in the form of cryptocurrency, taking into account the crypto market's 165% total market cap surge since the exchange's downfall. To put it in context, Bitcoin was traded around $16,900 when FTX declared bankruptcy, but it has since jumped 265% to $61,770. According to FTX's lawyer Andy Dietderich, the intent of the vote is to solicit feedback from FTX clients who have not yet participated in the repayment discussions. The firm’s legal team stressed that bankruptcy laws require claims to be valued at the time of the Chapter 11 filing – in accordance with its proposed plan. The counsel also highlighted that the proposed cash repayment plan would be simpler to execute and prevent creditors from being liable for capital gain tax.
Interestingly, a majority vote from creditors in favor of crypto repayment does not oblige the court to approve it. Creditors have until August 16 to vote, and the plan's approval will be decided by Dorsey on October 7. According to KrollFTX, the company has already recovered $11.4 billion in cash since the bankruptcy filing, and Dietderich anticipates this figure rising to $12.6 billion by October 31, the proposed date for implementation of FTX's Chapter 11 plan.
FTX was once among the biggest global crypto exchanges before its downfall in November 2022, with about $8 billion in funds misused from millions of customers. The majority of these funds were misallocated by FTX's trading company, Alameda Research, leading to a liquidity crisis when customers wanted to liquidate their assets. The troubled exchange was handed over to its current CEO, John Ray, a specialist in company turnaround, who is actively participating in the ongoing bankruptcy case. Simultaneously, the firm's previous CEO, Sam Bankman-Fried, was found guilty on several charges of fraud and money laundering in November 2023. He was sentenced to 25 years imprisonment in March.
Published At
6/26/2024 7:49:38 AM
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