The creditors of the bankrupt cryptocurrency exchange FTX have recently filed an objection to the proposed reorganization plan put forth by the platform. This objection, submitted in the U.S. Bankruptcy Court for the District of Delaware, raises several critical issues with the plan that they believe do not align with the requirements set forth in the Bankruptcy Code. The creditors argue that the plan does not adequately address property rights issues, does not pass the best interest test, and contains inconsistencies in the debtors’ liquidation analysis.
FTX had initially disclosed that they had amassed over $16 billion from the sale of assets and consolidation of funds from various entities, which was more than what was needed to repay customers who suffered losses when the exchange collapsed in 2022. The proposed reorganization plan outlines a repayment structure where creditors with claims less than $50,000 would receive 98% of their claims within 60 days, while non-governmental creditors would receive 100% of their claims along with a potential additional 9% interest payment.
While some members of the cryptocurrency community have responded positively to the proposed plan, creditor activist Sunil Kavuri and others have expressed their disapproval of its terms. They are particularly concerned about the tax implications that creditors may face if they receive cash payments instead of distributions in kind. The objectors believe that distributing assets instead of cash could help creditors avoid unnecessary tax burdens, and they are urging FTX to consider this alternative method of repayment.
In addition to the tax implications, Kavuri and the other objectors have raised legal concerns about the proposed reorganization plan. They argue that the plan is “unconfirmable as a matter of law,” includes releases that are not in the estate’s best interest, and contains ambiguous terms of service and statements from the debtors. The objectors are pushing for FTX to make changes to the plan to address these issues and ensure that the interests of the creditors are adequately protected.
The objections raised by the creditors of FTX highlight significant flaws in the proposed reorganization plan. It is essential for the bankruptcy estate to carefully consider these objections and work towards a more equitable and legally sound plan that addresses the concerns raised by the creditors. Failure to do so could lead to further challenges and delays in the bankruptcy process, ultimately prolonging the resolution for all parties involved.
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