FTX Exchange Seeks Customer Approval for Pioneering Chapter 11 Compensation Plan

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In an unprecedented move toward restructuring and absolution of their burdensome debts, cryptocurrency exchange FTX – which had disastrously collapsed under fraudulent charges in November 2022 – is seeking the approval of its customers for the implementation of a Chapter 11 compensation plan. The ruling, set down by Judge John Dorsey, transforms a bankruptcy proceeding that has been running for two years into a proceeding with real promise. Undoubtedly, the pivotal votes by creditors will steer the course of this long-running case.

In a surprising twist, this restructuring effort has garnered support from predominant customer committees despite resistance from a small, albeit resilient, faction that demands major revisions.

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Upon further insight provided by Bloomberg, the proposed plan, much to the customers’ relief, would restore most of the customers’ assets by 119% – this percentage reflects the value of their assets at the time of FTX’s shocking filing for Chapter 11 in 2022. An even brighter side of this plan suggests that some creditors might witness a recovery of up to 143% of their due amounts.

However, the company’s stance reinforces that bankruptcy law necessitates the claims’ valuation based on its value at the time of filing, irrespective of the subsequent surge in the prices of cryptocurrency. This clarification by FTX’s legal team smoothly subtracts any potential disputes based on the market’s volatile nature.

But why is FTX keen on soliciting votes from its customer base? As it turns out, the company has a renewed interest in obtaining feedback from previously uninvolved parties about the repayment plan. This customer-centric approach appears as a refreshing change amidst such dire circumstances.

Simultaneously, the negotiations with federal authorities are still extensive with active exploration of alternatives to employ government claims against FTX to reimburse affected customers.

Emerging from the shadows of their previously hefty $24 billion tax claims from the US Internal Revenue Service, FTX has cleverly managed to settle under the terms of payment of $200 million within 60 days of executing the proposed restructuring plan. This considerable reduction in their financial burden certainly paves the way for the exchange to channel more substantial customer recoveries. But what about the IRS’ chunk of the pie?

To ensure no discord, the IRS has agreed to receive a lower priority claim worth $685 million. Payments to the IRS will only occur once customers and other creditors are catered for, depending on the availability of the funds. All these extensive details remain visible in the recent FTX filing at the US Bankruptcy Court for the District of Delaware.

In the midst of monetizing its assets, FTX, instead of having segregated digital assets directly linked to claims against the exchange, possesses a collective pool of assets funded by stolen customer funds. This convoluted scenario remains a significant obstacle in the compensation process.

Customers only have until August 16 to cast their vote on the Chapter 11 plan. Judge Dorsey will then inspect this on October 7 and possibly allow the plan to progress contingent upon the preferably optimistic outcome of the customer vote.

The founder of FTX, Sam Bankman-Fried, mothballed the crypto trading platform in 2022 and handed off control to bankruptcy professionals. Bankman-Fried was found guilty of fraud charges shortly thereafter and now faces a lengthy 25-year sentence, against which he has announced his intention to appeal.

As it stands, the native token of the exchange, FTT, is trading modestly at $1.43 – this includes an increase of 2% within the past 24 hours and only a meager 27% increase year-to-date. Nevertheless, with all the uncertainty lingering around FTX, these figures represent a glimpse of resilience in the face of adversity.