The Rise and Fall of FTX: A Bankruptcy Plan Approved and cryptocurrency Concerns
A U.S. bankruptcy judge has given the green light to FTX’s bankruptcy plan, ending the turmoil that followed the Exchange’s collapse due to fraud and misconduct allegations. Judge John Dorsey from the U.S. Bankruptcy Court for the District of Delaware approved the plan during a hearing on October 7. This decision paves the way for creditors to start receiving payouts.
Approval of the Bankruptcy Plan
The approved plan ensures that 98% of creditors will receive at least 118% of their claims in Cash rather than cryptocurrency. During the hearing, Judge Dorsey remarked, “I want to say congratulations. This is a model case for how to deal with a very complex Chapter 11 bankruptcy.”
The majority of creditors in the "dotcom customer entitlement claims" class, representing around $6.83 billion in claims, favored the reorganization. Approximately 94% of creditors who cast their ballots supported the plan.
Although the plan received substantial backing, some creditor groups voiced dissatisfaction. Sunil Kavuri, a spokesperson for FTX's largest creditor group, expressed disappointment that payouts would not be in cryptocurrency. He argued that the estate should compensate creditors using Digital assets rather than the dollar value at the time of FTX's 2022 bankruptcy filing.
In addition, David Adler, an attorney representing other creditors, raised concerns about the Tax implications for recipients of Cash payouts instead of cryptocurrency. He warned that Cash distributions could lead to significant Tax liabilities for creditors.
Exclusion of cryptocurrency Payouts
During the hearing, David Adler questioned Steven P. Coverick, the managing director at Alvarez & Marsal North America, LLC, about the option of in-kind distributions. Coverick clarified that while distributing payouts in cryptocurrency was considered, it was ultimately excluded from the plan.
He explained, "The debtors do not possess the necessary cryptocurrency for in-kind distributions and never had the cryptocurrency in the amounts customers believed they held in their accounts."
Judge Dorsey echoed Coverick's sentiments by rejecting the notion of in-kind distributions and emphasizing that FTX's native Token, FTT, has no value. He stated, "I have no evidence today that the value of FTT tokens would be anything other than zero," pointing out that without FTX's revival, FTT lacks a basis for appreciating in value.
The FTX 2.0 Prospect
The possibility of a relaunch, known as "FTX 2.0," emerged in mid-2022 when FTX CEO John J. Ray III disclosed efforts to secure investors interested in reestablishing the Exchange. However, this concept did not come to fruition. By January, FTX attorney Andrew Dietderich informed the court that no investors had committed to a reboot.
For additional context, FTX filed for bankruptcy in November 2022, with former CEO Sam Bankman-Fried convicted in 2023 on various fraud charges. Several other prominent figures from the company, including Caroline Ellison, Gary Wang, and Nishad Singh, also faced charges.
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