- FTX’s bankruptcy administrators suggest 90% payouts to customers are possible after reaching a Customer Shortfall Settlement with various parties
- The settlement is part of an Amended Plan of Reorganization to be filed by December 16, 2023, and if approved, could be confirmed in Q2 2024
- The litigation addresses customer property interests, and FTX aims to establish an unsecured claim with equitable priority for customers
The FTX bankruptcy administrators have suggested that 90% payouts to customers could be a possibility after agreeing on a settlement regarding customer property disputes. FTX disclosed yesterday that a “Customer Shortfall Settlement” was reached among FTX debtors, the executive committee of the ad hoc committee representing non-U.S. customers, the official committee of unsecured creditors, and putative class representatives. The exchange aims to provide a revised payout plan in the second quarter of next year, with payouts potentially much higher than initially anticipated.
Bankruptcy Court Will Rule on Proposal in Q2 2024
FTX released a statement yesterday in which it announced the proposal of the Customer Shortfall Settlement as part of an Amended Plan of Reorganization, set to be filed by December 16, 2023. If approved by the Bankruptcy Court, the settlement will resolve customer property litigation and potentially confirm the Amended Plan in Q2 2024.
The litigation pertains to customer property interests in certain assets on FTX.com and FTX US, and the proposed settlement establishes an unsecured claim for customers with equitable priority over segregated or taken assets.
John J. Ray III, CEO and Chief Restructuring Officer of FTX Debtors, called the proposed settlement “another major milestone in our case,” adding that “the debtors and their creditors have created enormous value from a situation that easily could have been a near-total loss for customers.”
90% Payouts Possible
The Amended Plan proposed by FTX Debtors outlines several key elements:
- Assets would be divided into three pools: one for FTX.com customers, one for FTX US customers, and a General Pool for other assets.
- Customers of FTX.com and FTX US would hold a “Shortfall Claim” against the General Pool, estimated at approximately $8.9 billion for FTX.com and $166 million for FTX US.
- To address asset tracing difficulties, a negotiated portion of the Shortfall Claim would have an equitable priority against the General Pool, with 66% exclusively allocated to pay Shortfall Claims and 34% to pay remaining Shortfall Claims and other claims ratably.
If the Amended Plan is approved by the Bankruptcy Court next year, customers of both exchanges could collectively receive over 90% of distributable value worldwide, marking a far more substantial repayment than many could have expected when the exchange collapsed in November owing $9 billion.
However, FTX Debtors anticipate that customers will not be paid in full, with greater losses for FTX.com customers. Non-customers with claims against the General Pool may also face higher percentage losses, influenced by various factors, including tax claims, asset recovery efforts, and legal proceedings.
