In a significant development concerning the bankruptcy of FTX, the crypto exchange has proposed a plan to return up to 90% of creditor holdings. These funds were held when the exchange faced collapse in November of the previous year.
The debtors overseeing the bankruptcy process have outlined this proposal, which is set to be formally filed with a U.S. Bankruptcy Court for review by December 16, 2023. Are we finally going to see an FTX withdrawal approval?
Background and Challenges
FTX, once a prominent player in the cryptocurrency world, faced a tumultuous period when its financial state came under scrutiny, and it ultimately collapsed. CoinDesk published revelations about the state of FTX’s balance sheet, leading to its downfall.
Notably, FTX’s founder, Sam Bankman-Fried, is currently on trial facing criminal charges. To make matters worse, he’s not the only one. Most of his team members, co-workers, and associates, including the CEO of Alameda Research, are convicted or pending trial.
Creditor Payback Proposal
The proposed plan suggests a structured approach to returning creditor holdings. Missing customer assets will be divided into three distinct pools based on the circumstances at the outset of Chapter 11 cases:
- FTX.com Customer Pool: Assets held for FTX.com customers.
- FTX.US Customer Pool: Assets set aside for FTX’s U.S. customers.
- General Pool: A pool of other assets.
Customers with a preference settlement amount of less than $250,000 can accept the settlement without any reduction in claim or payment. The preference settlement is calculated as 15% of customer withdrawals from the exchange made nine days before its collapse.
Creditors are expected to receive a “Shortfall Claim” against the general pool, corresponding to the estimated value of assets missing at their respective exchanges. This shortfall claim is estimated to be approximately $8.9 billion for FTX.com and $166 million for FTX.US.
Factors Affecting Creditor Recovery
Creditors must be aware of potential factors that could influence their actual recoveries. These include taxes, government claims, token price fluctuations, and other variables that could impact the final distribution of assets.
Furthermore, the proposal allows for the exclusion of certain parties, such as insiders, affiliates, or customers who might have known about the commingling and misuse of customer deposits and corporate funds.
Individuals who changed their KYC (Know Your Customer) information to facilitate withdrawals when they were halted may also be excluded. In such cases, the payouts may not reflect the fair value of the FTX debtors’ claims.
Is FTX Withdrawal Really Going to be Possible?
The FTX creditor payback proposal represents a significant step in the bankruptcy process, potentially returning up to 90% of creditor holdings to those affected by FTX’s collapse. The plan addresses the situation’s complexity by categorizing assets into distinct pools and providing options for creditors based on their claim amounts.
However, the final outcomes may be influenced by various external factors. This development comes in the wake of FTX’s tumultuous history, including the ongoing trial of its founder, Sam Bankman-Fried, and revelations of financial mismanagement.
Creditors should carefully consider their options and the potential implications of this proposal as they await the U.S. Bankruptcy Court’s decision. If you need any help understanding your recovery options, book a free consultation with our chargeback experts today.