- A U.S. court has approved FTX’s bankruptcy plan, concluding two years of complex legal proceedings.
- 98% of creditors will receive at least 118% of their claim value in cash.
- FTX never had enough cryptocurrency to make in-kind distributions to creditors.
A US court has officially approved the bankruptcy plan for crypto exchange FTX, paving the way for the process of distribution of funds to its creditors and restructuring its remaining assets. This concludes two years of one of the most complex legal cases in the cryptocurrency industry.
During a court hearing on 7th Oct, Judge John Dorsey in the U.S. Bankruptcy Court for the District of Delaware finalized the plan where 98% of creditors will receive at least 118% of their claim value in cash. In a statement following the decision, Dorsey stated, “I want to say congratulations. This is a model case for how to deal with a very complex Chapter 11 bankruptcy.” ‘
A majority of the creditors who voted on FTX’s bankruptcy plan voted in favor of the reorganization plan, However, some creditors criticized the plan because it didn’t pay them back in cryptocurrency, which was worth a lot when FTX went bankrupt.
David Adler, legal representative of some of the creditors stated that creditors would pay a lot in taxes if they got paid in cash instead of cryptocurrency. He also asked Steven P. Coverick, managing director at Alvarez & Marsal North America, LLC, about the FTX’s plan on in-kind distributions. Coverick said although the topic “was discussed at length” the plan did not include those in-kind distributions.
“The debtors do not have cryptocurrency that would be required to make in-kind distributions and, in fact, never had the cryptocurrency and the proportions in which customers believed they had in their accounts,” Coverick added.
When enquired why FTX didn’t pay creditors back in cryptocurrency, Judge Dorsey reaffirmed FTX never had enough cryptocurrency to do that. The judge also said the value of FTX’s cryptocurrency is now zero.
FTX Creditors’ Repayment Process
Following court’s approval, the bankrupt crypto exchange is set to initiate the repayment process which might extend over the next two to three years. According to Sunil Kavuri, a representative of the largest creditor group, roughly $5.5 billion in claims have been bought, with 50% of those claims not coming from crypto investors, meaning that these holders are unlikely to reinvest in the crypto market.
The update also hints at a possible timeline for distribution. Claims under $50,000 could see resolution by the end of 2024, while larger claims above $50,000 are projected to receive between 70% to 100% of their petition date value.
For claimants holding more than $50,000, Sunil indicated that if the recovery hits 100%, it would result in a $5.5 billion recovery for both claim buyers and original holders.