Recently, court documents disclosed by FTX indicated that the $230 million in proceeds from the government's seizure actions may be distributed first to preferred shareholders, a move that has caused strong dissatisfaction among creditors. In response, FTX's official Twitter account posted today that the U.S. Department of Justice will be responsible for mediating the claims of both parties and indicated that preferred shareholders are also considered victims of FTX's fraudulent activities and have the same status as creditors.
A repayment plan for bankrupt cryptocurrency exchange FTX is expected to hold a court confirmation hearing on October 7. If the plan is approved, creditors could begin receiving compensation as early as the end of 2024.
However, court documents disclosed by FTX recently indicated that it would set aside up to $230 million (or 18%) from the proceeds of the government's seizure action to repay preferred shareholders. This angered creditors because they usually receive compensation before shareholders in bankruptcy proceedings, and they were unaware of the agreement when they voted to approve the repayment plan on August 16.
The Ministry of Justice is responsible for adjudicating disputes between the two parties
In response to this, the official account of FTX posted a message today stating that the FTX debtor provided the latest news regarding the settlement agreement with preferred shareholders.
Under FTX’s bankruptcy reorganization plan, FTX will return 100% of all assets under its control to creditors. In addition, the Department of Justice (DOJ) controls the distribution of assets seized through criminal cases and has stated that preferred shareholders are victims just like creditors under criminal law.
FTX and preferred shareholders have competing claims for disgorgement proceeds, and the DOJ will be responsible for mediating those claims. Once the settlement is accepted by the DOJ, the settlement will be handled in a manner that FTX believes is fair to both parties and avoids a protracted dispute.
Therefore, if the Justice Department accepts the settlement, preferred shareholders will receive up to $230 million in distributions under the original agreement.
The official account added that FTX is asking the Department of Justice to agree to a centralized distribution process through its Chapter 11 bankruptcy reorganization plan to speed up distributions to creditors and avoid unnecessary high expenses.
FTX’s preferred shareholders include many prominent people
According to CNBC, FTX’s preferred shareholders include many well-known investors and institutions, for example:
Dan Loeb – controls more than 6.1 million shares of preferred stock through venture funds associated with Third Point.
Coinbase – has nearly 1.3 million shares of preferred stock.
Paul Tudor Jones – founder of hedge fund Tudor Investment, owns FTX shares through a series of family trusts.
Robert Kraft – billionaire owner of the New England Patriots, 155,144 shares of preferred stock.
Paradigm, Temasek...
FTX will start repayments by the end of the year
Although there were rumors on social media yesterday that the FTX restructuring team would begin paying creditors and customers on September 30, in fact, these were false rumors as the repayment plan has not yet been approved by the court.
A confirmation hearing for FTX's repayment plan will be held on October 7, Eastern Time, when Judge John T. Dorsey of the Delaware Bankruptcy Court will decide whether to approve the plan. If approved, small creditors with claims of less than $50,000 may begin receiving compensation by the end of 2024, while creditors with larger claims may have to wait until the first or second quarter of 2025 to receive compensation.
Creditors object to repayment plan
According to the current plan of the restructuring team, FTX will repay creditors in cash or dollar-pegged stablecoins. It is estimated that after all assets are sold, FTX will have up to $14.5 billion to $16.3 billion in cash available for distribution, while it owes customers and other non-government creditors approximately $11.2 billion. FTX recently stated that the vast majority of users (those who once held funds below $50,000) will be able to receive approximately 118% cash compensation.
However, the compensation for losses is calculated based on the platform funds on the day FTX exercised Chapter 11 of the Bankruptcy Law, so unless the assets placed by the user in FTX are stablecoins, it is actually still a big loss. For example, when the bankruptcy application was filed, the price of Bitcoin was only about US$16,000, but the current price is close to US$66,000. That is to say, if the user held a BTC in FTX at that time, he might only get back US$16,000 in the end, which is less than 25% of the current value.
Therefore, the FTX creditor group, led by Sunil Kavuri, opposed the repayment plan for multiple reasons, including requiring compensation in the form of cryptocurrency and opposing cash payments because they would result in the need to pay taxes. However, FTX lawyers insisted that creditor compensation must be paid in cash to avoid conflicts with the current Chapter 11 bankruptcy law and hinder the reorganization process.
