FTX has been approved by a court to inquire whether creditors are willing to receive recovered funds in the form of cash or in the form of cryptocurrency at current market value under FTX’s current liquidation plan.
Judge John Dorsey of the U.S. Bankruptcy Court in Delaware approved FTX’s voting plan on June 25.
Several FTX creditors have expressed dissatisfaction with the company’s latest liquidation plan submitted in May. The plan shows that 98% of creditors (creditors with claims of less than $50,000) will receive a 118% return based on the dollar value of assets at the time of FTX’s bankruptcy application in November 2022.
However, many FTX creditors are seeking physical payment in cryptocurrency, as the total market value of the cryptocurrency market has increased by 165% since the exchange went bankrupt.
From the perspective of some creditors’ unwillingness to repay in cash, the price of Bitcoin was around $16,900 when FTX filed for bankruptcy, but at the time of writing, the price of Bitcoin had skyrocketed 265% to $61,770.
FTX lawyer Andy Dietderich stated at the court hearing that the purpose of the vote is to gather feedback from a large number of FTX customers who have not yet participated in repayment negotiations.
However, FTX’s lawyers emphasized that bankruptcy law requires the company to value claims at the time of FTX’s bankruptcy application, which is in line with their proposed plan.
The lawyers added that the proposed cash repayment plan would be easier to implement because creditors would not be required to pay capital gains tax.
It is worth noting that even if creditors vote in favor of repaying in physical form with cryptocurrency, the court will not be forced to approve it.
Court documents show that creditors will vote on the plan by August 16, and Dorsey will decide whether to approve the plan by October 7.
FTX creditors will vote on the plan by August 16. Source: Kroll
Since filing for bankruptcy, FTX has recovered $11.4 billion in cash, but Dietderich expects this number to rise to $12.6 billion by October 31 when FTX’s bankruptcy protection plan may come into effect.
FTX was once considered one of the world’s largest cryptocurrency exchanges before it collapsed in November 2022. Approximately $8 billion of funds from millions of customers were misappropriated. The majority of the funds were misused by FTX’s trading firm Alameda Research, triggering a liquidity crisis when customers sought to liquidate assets.
The defunct exchange has been handed over to current CEO John Ray, an expert in turning losses into profits, who is still actively involved in the bankruptcy case.
Meanwhile, former CEO Sam Bankman-Fried was convicted of multiple fraud and money laundering charges in November 2023 and was sentenced to 25 years in prison in March.
