FTX Reorg Plan Update: $16B Distribution Expected — Relief for Creditors?
In a bid to settle the debts incurred from its 2022 collapse, FTX, the bankrupt crypto exchange, has put forth a new proposal that promises to repay creditors in full, alongside additional compensation for the time value of their investments. However, despite the apparent strides, critics argue that the plan may still fall short of being equitable.
Plan Subject to Court Approval
FTX’s latest proposal, unveiled on May 7, is contingent on approval from the United States Bankruptcy Court for the District of Delaware. The exchange highlighted that the plan is still pending finalization.
Eligibility Criteria and Recovery Rate
Under the proposed plan, only creditors with claims below $50,000 will be eligible for a 118% recovery rate. FTX estimates that this covers approximately 98% of its creditors by number.
Reimbursement at Historic Prices
A notable point of contention is FTX’s decision to reimburse creditors based on the value of their assets at the time of the exchange’s bankruptcy in November 2022, rather than at current market prices. This stance has sparked criticism from some creditors who argue for repayment equivalent to present-day values.
Market Resurgence and Compensation Estimate
Since the bankruptcy, the cryptocurrency markets have witnessed significant growth, with Bitcoin soaring by nearly 280%. Despite this uptrend, FTX CEO and chief restructuring officer John J. Ray III defended the proposal, asserting that it ensures the return of 100% of bankruptcy claim amounts plus interest for non-governmental creditors. The estimated total distribution to creditors falls within the range of $14.5 to $16.3 billion.
Timeline for Repayment
Should the proposal be approved, creditors can expect repayment within 60 days following the plan’s effective date.
Dissatisfaction Among Industry Experts
Despite FTX’s reassurances, industry pundits, including Mike Belshe, CEO of BitGo, remain skeptical. Belshe voiced concerns on May 8, stating that the proposed plan fails to adequately compensate victims for their losses, given the disparity between historic and current asset values.
FTX’s latest proposal marks a significant step in addressing its outstanding debts. However, the debate surrounding the fairness of the reimbursement terms underscores the complexity of navigating the aftermath of the exchange’s collapse. As stakeholders await the court’s decision, the outcome will undoubtedly shape the future landscape of crypto bankruptcy proceedings.
