- The FTX Debtors estate has submitted a Chapter 11 reorganization plan that would bring it out of bankruptcy
- Users’ crypto holdings would be paid out in cash at the November 2022 bankruptcy filing valuation
- The plan has faced opposition as users would miss out on the benefits of the 2023 crypto rebound
The FTX Debtors estate has submitted a proposal to bring the company out of bankruptcy, but its plans have not gone down well with everyone. The company, still led by CEO John Ray III, recently submitted its amended Chapter 11 plan of reorganization in which it outlined the treatment of bankruptcy claims. The reorganization plan, if approved, may see crypto holdings paid out at their valuation at the time of the bankruptcy rather than in the cryptocurrencies they held, leading to users missing out on the benefits of the 2023 crypto rebound.
Cash Payouts at Bankruptcy Rates
FTX filed for bankruptcy on November 11, 2022, since when it has managed to claw back some $7 billion, with billions more possibly to come depending on the success of various lawsuits. In October, Ray said that claimants could hope to receive some 90% of their holdings back, but the latest filing has dashed any hopes that these will be in the form of cryptocurrencies.
As we saw last week with Gemini Earn customers, and even further back with MtGox, the bankruptcy process typically involves the liquidation of any remaining assets within the bankrupt entity and claimants paid out in cash. This remains true with FTX customers, who will be gutted that they are being paid out in cash at the valuation of their holdings on the day that FTX filed for bankruptcy rather than getting back the crypto they held. For example, last week the value of the FTT token jumped to nearly double the valuation on the day of bankruptcy.
Gemini Earn customers felt the same pain last week, and MtGox claimants were only saved from this fate when they voted to send the company into civil rehabilitation, which permitted the distribution of BTC and BCH.
Bankruptcy Lawyers Lapping Up FTX Cash
Creditors from specific classes will have the opportunity to vote on the amended reorganization plan, subject to various approval thresholds based on dollar amounts and claimant numbers. FTX has asserted that the plan represents compromises to achieve the best outcome for all stakeholders and creditors in the Chapter 11 Cases.
Meanwhile, the company’s latest compensation filings reveal that in the three months ending October 31, FTX incurred substantial costs related to bankruptcy lawyers and advisers; over this period, legal fees totaled at least $118.1 million, equivalent to $1.3 million per day or $53,300 per hour. Claimants are also aware that, as well as legal bills sucking money out of the pot, the Inland Revenue Service has also filed a claim for $24 billion, which is being settled in court in January.
