A U.S. bankruptcy judge has given the green light to FTX’s bankruptcy plan, which concludes the fiasco that ensued after the exchange’s collapse following accusations of fraud and misconduct. Judge John Dorsey of the U.S. Bankruptcy Court for the District of Delaware approved the plan during a hearing on Monday, October 7. Moreover, the decision opens the door for creditors to begin receiving payouts.
FTX Bankruptcy Plan Receives Judge’s Approval
As part of the plan, 98% of creditors are expected to recover at least 118% of their claims in cash instead of crypto. Judge Dorsey commented during the hearing, “I want to say congratulations. This is a model case for how to deal with a very complex Chapter 11 bankruptcy.”
The approval comes after a majority of creditors in the “dotcom customer entitlement claims” class, representing approximately $6.83 billion in claims, supported the reorganization. About 94% of creditors who submitted ballots voted in favor of the plan.
Despite this majority backing, the plan faced criticism from some creditor groups. Sunil Kavuri, a representative of FTX’s largest creditor group, expressed disappointment that payouts would not be made in cryptocurrency. He argued that the estate should issue compensation in digital assets rather than the dollar value at the time of FTX’s 2022 bankruptcy filing.
In addition, David Adler, an attorney representing other creditors, raised concerns about the tax consequences for those receiving cash payouts instead of crypto. He warned that the cash distributions could result in large tax liabilities for creditors.
During Monday’s hearing, Adler questioned Steven P. Coverick, managing director at Alvarez & Marsal North America, LLC, about the possibility of in-kind distributions. Coverick explained that distributing payouts in crypto had been considered extensively but was ultimately excluded from the plan.
He stated, “The debtors do not have cryptocurrency that would be required to make in-kind distributions and, in fact, never had the cryptocurrency and the proportions in which customers believed they had in their accounts.”
Judge Dorsey also rejected the idea of in-kind distributions, reiterating that the exchange’s native token, FTT, holds no value. “I have no evidence today that the value of FTT tokens would be anything other than zero,” Dorsey stated. Additionally, he emphasized that since the exchange would not be revived, FTT has no basis for appreciating in value.
FTX 2.0 Prospect
The prospect of a relaunch, referred to as “FTX 2.0,” had surfaced in mid-2022 when FTX CEO John J. Ray III disclosed efforts to find investors interested in restarting the exchange. However, the idea never materialized. By January, FTX attorney Andrew Dietderich informed the court that no investors had committed to a reboot.
For further context, FTX filed for bankruptcy in November 2022, with its former CEO Sam Bankman-Fried convicted in 2023 on multiple counts of fraud. Several other key figures from the company, including Caroline Ellison, Gary Wang, and Nishad Singh, were also charged.
Also Read: FTX Hearing Today, Here’s What to Expect
Credit: Source link
