FTX Estate Proposes Recovery Plan With 90% Asset Return Expected – The recently closed FTX cryptocurrency exchange unveiled a proposed resolution strategy this week to address disputes related to the loss of customer assets during its bankruptcy filing in November 2022. FTX’s debtors have put forth a settlement plan that includes preferential payments to customers and an option to reduce potential preference liability.
If approved, customers are projected to recover over 90% of their assets globally. This plan has been submitted to the Delaware bankruptcy court, with the goal of obtaining approval by the second quarter of 2024. The proposed settlement scheme categorizes FTX’s assets into three separate pools: one for FTX.com customers, another for FTX US customers, and a general pool.
It provides customers with priority “shortfall claims” against the general pool, which is estimated to be worth $9 billion. “Taking into account both the priority and the non-priority portions of the shortfall claim, the FTX Debtors estimate that customers of FTX.com and FTX US would receive, collectively, over 90% of distributable value worldwide if the Amended Plan is approved,” the announcement details.
“Together, starting in the most challenging financial disaster I have seen, the debtors and their creditors have created enormous value from a situation that easily could have been a near-total loss for customers,” said John J. Ray III, FTX’s chief restructuring officer and current CEO. In an effort to address potential preference claims, FTX has presented customers with an option to decrease their payouts based on the net withdrawals they made within nine days before the bankruptcy filing.
Under this offer, customers are required to reimburse 15% of the amount by which their withdrawals exceeded their deposits during that specific period. To illustrate, if a customer withdrew $100,000 but only deposited $20,000 in the nine days leading up to the bankruptcy, their net withdrawal would be $80,000. They would then be responsible for repaying 15% of this amount, equivalent to $12,000, which would reduce their overall payout.
Customers with net withdrawals totaling less than $250,000 will not be subject to any reduction under this arrangement. Additionally, FTX retains the option to exclude specific customers from this offer. The announcement emphasized that the exact percentages of recovery are still uncertain and hinge on factors such as the outcome of asset sales, litigation, and the volatility of cryptocurrency prices.
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It was highlighted that non-customers will experience more significant losses compared to users of the exchange under this arrangement. FTX described the deal as a significant achievement arising from lengthy and impartial negotiations conducted over several months with key stakeholders, including the customers’ committee.