The restructuring team of the bankrupt crypto exchange FTX announced last month that creditors have overwhelmingly approved the repayment plan and will submit the final voting results to the Delaware Bankruptcy Court before the confirmation hearing on October 7. If the court approves, the repayment process is expected to start within 60 days at the earliest. Recently, social media has circulated that FTX will start paying creditors and customers on September 30, but this is a rumor. The repayment plan has not yet been approved by the court.
According to Cointelegraph, Judge John T. Dorsey of the Delaware Bankruptcy Court will preside over a confirmation hearing on October 7. If the plan is approved, small creditors with claims of less than $50,000 may begin to receive compensation by the end of 2024, while larger creditors may have to wait until the first or second quarter of 2025.
Creditors oppose compensation plan
According to the plan of the FTX restructuring team, creditors will receive compensation in cash or stablecoins pegged to the US dollar. It is expected that after all assets are sold, FTX will have $14.5 billion to $16.3 billion in cash to distribute, and it owes customers and non-government creditors about $11.2 billion. FTX previously stated that the vast majority of users (creditors with funds less than $50,000) can receive about 118% cash compensation. However, the compensation is calculated based on the value of FTX's assets when it filed for bankruptcy, which means that in addition to users holding stablecoins, others may face greater losses.
For example, the price of Bitcoin was around $16,000 when FTX filed for bankruptcy, while it is now close to $66,000. If users held one Bitcoin at the time, they might only get back $16,000, or about 25% of its current value.
The creditor group led by Sunil Kavuri opposed the repayment plan and demanded compensation in the form of cryptocurrency, arguing that cash compensation would not only lead to losses but also trigger tax issues. However, FTX lawyers insisted that compensation must be paid in cash to comply with Chapter 11 of the Bankruptcy Law and avoid hindering the reorganization process.
FTX plans to allocate $230 million to shareholders, angering the public
According to The Block, FTX recently filed court documents showing that FTX has reached an agreement with relevant parties to set aside up to $230 million from government seizure actions to repay certain shareholders. This news has caused strong dissatisfaction among creditors, because creditors usually have priority compensation rights in bankruptcy proceedings. However, when creditors voted to approve the repayment plan on August 16, they were not aware of the existence of this agreement.
The agreement, which was led by FTX’s debt management team led by law firm Sullivan and Cromwell, provides for 18% of the proceeds from the government’s forfeiture action to be set aside for a special fund to provide up to $230 million in compensation to “certain shareholders.” The agreement was signed on August 28 but was not publicly disclosed until September 27.
FTT surges
Forbes pointed out yesterday that FTX is expected to return $11 billion to $16 billion to creditors in the fourth quarter of 2024, which could be a significant boon to the crypto market. If the restructuring plan is approved at the hearing, FTX will begin distributing assets within 60 days, and creditors are expected to receive funds as early as December 7, which could flow back into the crypto market or ETFs.
Influenced by this news and rumors of repayment on September 30, FTT surged last night, reaching a high of $2.71, an increase of more than 80%, and is now trading at $2.41, up more than 70% in 24 hours. At the same time, bankruptcy concept coins also generally rose, with USTC now trading at $0.02332, up 25.04%; LUNA now trading at $0.4480, up 8.90%; and LUNC now trading at $0.00009893, up 10.00%.
That’s all for today’s article. We are currently in a bull market, and things are turbulent. We share passwords every day.
