FTX Bankruptcy Restructuring Team Promises Full Compensation to Users, Along with an Additional 18% Interest
After nearly 19 months of legal battles and liquidation proceedings, the bankruptcy restructuring team of cryptocurrency exchange FTX has finally brought a ray of hope to the affected users. According to the restructuring plan released by the team on Tuesday (5/8) local time, claimants with amounts below $50,000, which accounts for approximately 98% of the creditors, will not only receive full compensation but also an additional 18% interest. All compensation will be paid in cash.
The bankruptcy restructuring team stated that if all FTX assets are sold, the company will have up to $16.3 billion in cash available for distribution, while the amount owed to customers and other non-government creditors is approximately $11 billion.
Led by John J. Ray III, a bankruptcy lawyer with 40 years of experience who previously handled the Enron bankruptcy case, the FTX bankruptcy restructuring has been collecting scattered assets worldwide for the past 19 months. The estimated compensation amounts have progressed from 90% in October of last year to full payment in January of this year, and now to the situation where most creditors can also receive interest. According to Bloomberg, in previous bankruptcy cases in the United States, it is extremely rare to receive full payment along with interest.
In order to generate enough cash to pay the claims, the team also liquidated FTX and Alameda Research’s investments in other startups and stocks, including an 8% stake in the artificial intelligence startup Anthropic, one of OpenAI’s largest competitors, founded by former members of OpenAI, which raised a total of $884 million in the transaction.
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Some of the affected users are dissatisfied with the “dollarization” compensation, as they believe they are still losing two-thirds of their value when calculating their losses according to the current exchange rate.
Although the plan sounds generous, some FTX creditors are extremely dissatisfied.
The cause of dissatisfaction lies in the “dollarization” process, which is a common procedure in bankruptcy proceedings.
This means that users are forced to calculate their asset losses in dollars, based on the fact that when FTX filed for bankruptcy restructuring in November 2022, the price of Bitcoin had already dropped to $16,000, which is the basis for the team’s compensation.
However, the current value of Bitcoin has risen to over $60,000 per coin. These creditors believe that forcing them to accept compensation in dollars is an “insult” to them, as the actual compensation, including the increase in assets, is less than one-third of the advertised “118%”. They believe that the number is just a clever use of words by the bankruptcy restructuring team.
In addition, the plan includes a series of small-print stipulations, one of which is seen as threatening. According to bankruptcy restructuring practices, companies that declare bankruptcy can recover funds from their treasury that were withdrawn before the formal declaration of bankruptcy. In other words, if users attempted to withdraw funds between the FTX crisis and the official declaration of bankruptcy, the bankruptcy restructuring team can sue these users to recover the funds. However, this small-print stipulation states that if users agree to receive compensation in dollars, the bankruptcy restructuring team will not initiate lawsuits – meaning that users have no choice but to agree.
These creditors also accuse FTX of having enough assets to compensate users in cash due to the recent surge in cryptocurrency prices. They have also organized a voting group of approximately 1,600 people, preparing to vote against the implementation of the plan in June.
The restructuring team denies profiting from the increase in cryptocurrency prices, and convinces government agencies to waive their priority claim rights.
Facing criticism from the public regarding the source of compensation funds primarily coming from the rise in cryptocurrency prices, the restructuring team firmly denies it.
In a press release, they stated that when FTX.com filed for Chapter 11 bankruptcy in November 2022, there was already a significant funding gap. In fact, they only had 0.1% of the Bitcoin and 1.2% of the Ethereum stated on their books. Therefore, as the debtor, FTX did not profit from the recent increase in cryptocurrency prices.
In addition to the opposing creditors, the efforts of the restructuring team, led by John J. Ray III, have also been recognized by the majority of the public.
In addition to the general public, regulatory and government agencies are also victims of FTX’s collapse. The restructuring team has negotiated with the Internal Revenue Service (IRS) and the Commodity Futures Trading Commission (CFTC) in the United States. The IRS has agreed to settle its $24 billion claim with $200 million in cash and $685 million in subordinated claims. The CFTC and other unnamed government claimants have also agreed to downgrade their claims as long as FTX users and investors receive full compensation and interest. (Note: Subordinated claims will only be compensated after all other creditors and government entities have been compensated.)
The plan is currently pending approval by the United States Bankruptcy Court and the hearing is expected to take place in June. If the number of votes surpasses two-thirds of the creditors and receives the approval of more than half of the voting creditors, the plan will be approved, and FTX is expected to begin repayment within 60 days of the plan taking effect.
Sources:
Coindesk, Wired, Bloomberg, The Block