FTX announced on Monday that the U.S. Bankruptcy Court for the District of Delaware has confirmed its reorganization plan, marking the conclusion of the bankruptcy proceedings for this cryptocurrency exchange two years after its collapse due to fraud and misconduct.
Bankruptcy Judge John Dorsey decided to approve the reorganization plan during a hearing on Monday. Under the terms of the plan, 98% of FTX creditors will receive approximately 119% of their allowed claims within 60 days after the plan takes effect, but they must meet "Know Your Customer" (KYC) and other distribution requirements.
According to a press release from FTX, the total value of the assets collected, converted to cash, and available for distribution is expected to be between $14.7 billion and $16.5 billion, which includes assets controlled by Chapter 11 debtors, as well as assets controlled by the joint official liquidators of FTX Digital Markets (FTX's Bahamian subsidiary), FTX Australia administrators, the U.S. Department of Justice, and dozens of private entities cooperating in asset recovery efforts.
FTX debtors will announce the effective date of the reorganization plan and the expected date of the first distribution at an appropriate time.
"The court's confirmation of our plan is an important milestone in the process of distributing cash to our customers and creditors," FTX CEO and restructuring chief John J. Ray III stated in the press release. "Looking ahead, we are prepared to return 100% of the bankruptcy claims and interest to non-government creditors through the largest and most complex asset distribution in history. The bankruptcy estate is working to finalize arrangements for distributions to creditors in over 200 jurisdictions worldwide. To prepare for this process, we are completing agreements to hire professional agents to assist us in distributing the recovered funds to customers around the world as safely and quickly as possible."
According to a report by CoinDesk, lawyers for the FTX bankruptcy estate stated that they are still considering using stablecoins as an option for creditor distributions and confirmed that they are in discussions with at least four companies to handle such distributions if necessary. However, the U.S. Securities and Exchange Commission (SEC) has raised objections to this aspect of the repayment plan.
Some customers express dissatisfaction with the reorganization plan
According to a previous report by The Block, among the voting creditors in the FTX.com customer claims category, approximately 94% (representing about $6.83 billion in claims) voted in favor of the reorganization plan. However, a representative of the largest FTX creditor group, Sunil Kavuri, criticized the plan.
Kavuri believes that the bankruptcy estate should repay in physical form rather than based on the dollar value of these cryptocurrencies at the time of FTX's bankruptcy. David Adler, a lawyer representing some creditors, also stated in court that if creditors receive compensation in cash rather than physical form, they will face a significant tax burden.
Although FTX expects to repay more than creditors anticipated receiving two years ago, it still cannot compare to the gains from Bitcoin (BTC) and other cryptocurrencies during the FTX bankruptcy process. Bitcoin was priced at about $16,000 when FTX filed for bankruptcy, while as of the publication of this article, Bitcoin's trading price was $62,650.
On Monday, Adler asked Steven P. Coverick, a managing director at FTX's financial advisor Alvarez & Marsal North America, LLC, about FTX's attempts to conduct physical distributions. Coverick stated that this issue "has been discussed for a long time," but ultimately the plan does not include those physical distributions.
Coverick added, "The debtors do not have the cryptocurrencies needed for physical distributions, and in fact, they never had the cryptocurrencies and shares that customers believe they have."
Judge Dorsey later opposed allowing physical distributions during the hearing on Monday and reiterated that the value of FTX's native token, FTT, is zero. In addition to lacking evidence that FTT has value, the judge stated that "the FTT token is inextricably linked to the debtors." He added that since the debtors do not intend to restart the exchange, there is no basis for the token to appreciate.
Possibly influenced by the judge's approval of the FTX reorganization plan, the price of FTT surged over 50% early this morning, reaching $3.40. Before the deadline, the price of FTT had retreated to about $2.57.