The failed cryptocurrency exchange FTX is seeking approval from its clients for its Chapter 11 plan to compensate victims and settle government penalties resulting from the fraudulent collapse of the platform in November 2022.
The decision by Judge John Dorsey marks a significant step forward in the two-year bankruptcy process, with creditors’ votes playing a crucial role in the restructuring efforts. While FTX’s plan has received support from the majority of the client committee, an outspoken group is still opposed and demanding substantial modifications.
FTX offers 119% asset recovery for clients
According to Bloomberg, under the proposed plan, most FTX clients are expected to recover 119% of their assets as of the date the company filed for Chapter 11 in November 2022. Other creditors may receive up to 143% of the amounts owed to them.
FTX’s legal team insists that despite subsequent increases in cryptocurrency prices, bankruptcy law requires claims to be valued based on their worth at the time of the claim.
The decision by FTX to seek votes from its client base stems from a desire to obtain feedback on the repayment plan from previously uninvolved parties.
Furthermore, the company is still in negotiations with federal authorities and exploring using government claims against FTX to compensate affected clients.
It is worth noting that FTX has already settled a $24 billion tax claim with the IRS. Under the terms of the settlement, the company will pay $200 million to the IRS within 60 days of implementing the proposed restructuring plan.
The settlement agreement allows FTX to pay only a small portion of the IRS claim, paving the way for the exchange to allocate important client recovery funds.
The IRS will also receive a lower-priority claim of $685 million, which will be paid to clients and other creditors on a secondary basis based on the availability of funds. These details were outlined in a document filed by FTX in the Delaware bankruptcy court.
SBF’s fraud conviction complicates bankruptcy proceedings
FTX is currently liquidating its assets as the platform reportedly lacks independent digital assets directly related to claims against the exchange. Instead, FTX holds a pool of assets obtained using stolen client funds, presenting a complex challenge in the compensation process.
Clients must vote on the Chapter 11 plan by August 16. Judge Dorsey will then review and potentially approve the plan on October 7 based on the client vote results.
FTX filed for bankruptcy after its founder, Sam Bankman-Fried (SBF), closed the cryptocurrency trading platform in 2022 and handed control over to bankruptcy professionals. Bankman-Fried subsequently faced a 25-year fraud conviction, and he recently announced plans to appeal.
The one-dimensional chart shows a downward trend in the price of FTT. Source: FTTUSD on TradingView.com
At the time of writing, the trading price of FTX’s native token FTT is $1.43, up 2% in the past 24 hours, and has only risen 27% year-to-date.
The featured image is from DALL-E, and the chart is from TradingView.com.
