FTX Granted Court Approval For Liquidation Plan Amidst Creditor Objections

By: Eva Baxter

A US bankruptcy court has granted FTX, the collapsed cryptocurrency exchange, approval to solicit votes on a liquidation plan to compensate customers and resolve government penalties. The plan, which aims to pay customer claims in cash based on crypto prices at the time of FTX's November 2022 collapse, has been met with varying reactions from creditors.

The proposed cash payment plan takes into account the values of cryptocurrencies at the time of the collapse, overriding objections from customers who argue for higher amounts due to subsequent increases in crypto prices. According to estimates, a customer who held one Bitcoin with FTX would receive $16,800 under the plan instead of the current value of Bitcoin. Some creditors have voiced concerns, labeling FTX's promises of a full recovery as misleading.

FTX CEO John J. Ray III emphasized the impossibility of returning the original crypto deposits due to the company's shortfall upon bankruptcy. He stated that the exchange held only 0.1% of the Bitcoin and 1.2% of Ethereum shown in customer balances at the time of filing. Ray argued that any demands for appreciated value would result in taking money away from fellow customers.

The company is soliciting votes from its customer base until August 16, with final approval for the plan expected on October 7. The liquidation plan stipulates that 98% of customers will gain access to the total amount owed within 60 days of the court's approval. A faster payment option is available for claims under $50,000.

The plan has received support from key customer committees, yet a vocal group of creditors remain opposed, demanding significant revisions. FTX's legal team justifies valuing claims based on their worth at the time of filing, in accordance with bankruptcy law. Customers opposing the plan argue for considering the recent rise in cryptocurrency prices.

The exchange is also negotiating with federal authorities and exploring options to use government claims against FTX to compensate affected customers. Notably, FTX has already settled a $24 billion tax claim with the US Internal Revenue Service (IRS), agreeing to pay the IRS $200 million within 60 days of the proposed plan's implementation.

Additionally, FTX's ongoing efforts to monetize its assets have been complicated by the lack of segregated digital assets directly linked to customer claims. Instead, FTX possesses assets acquired using misappropriated customer funds, adding a layer of complexity to the compensation process.

As the approval process continues, stakeholders within the FTX community will closely watch the progression of the Chapter 11 plan, particularly in light of former FTX founder Sam Bankman-Fried's 25-year fraud conviction, which he plans to appeal. The outcome of the customer vote and subsequent court approval will play a pivotal role in determining the future of the exchange's assets and customer compensation.