According to The Block: Two years after the dramatic collapse of the FTX exchange, a U.S. bankruptcy judge has approved the company’s reorganization plan, bringing the case closer to a resolution. During a hearing on Monday, Judge John Dorsey of the U.S. Bankruptcy Court for the District of Delaware gave the green light to a plan that will see creditors recover at least 118% of their claims in cash. The approval marks a significant milestone in the complex Chapter 11 bankruptcy proceedings initiated after FTX filed for bankruptcy in late 2022 amid allegations of fraud and misconduct.

Creditors Favor Cash Payouts Despite Push for Crypto

The plan received overwhelming support from creditors, with about 94% of those in the "dotcom customer entitlement claims" class—representing approximately $6.83 billion in claims—voting in favor. However, not everyone was satisfied with the decision. Sunil Kavuri, representing the largest FTX creditor group, argued that creditors should be paid out in-kind, receiving cryptocurrency instead of the dollar value of their claims.

Despite this push, Judge Dorsey rejected the idea, stating there was no basis for the value of FTT tokens, FTX's native cryptocurrency, to recover. "FTT tokens were inextricably intertwined with the debtors," Dorsey said, adding that since the exchange is not being revived, there is no prospect for the token's value to increase.

FTX 2.0 Plans Ruled Out

The possibility of reviving the FTX exchange under a "FTX 2.0" rebrand was also floated earlier but ultimately dismissed. Although FTX CEO John J. Ray III had discussed soliciting interested parties for a potential reboot in June 2022, the lack of investor commitment meant the idea was abandoned. Andrew Dietderich, an FTX lawyer, confirmed in January that no investors were ready to back the restart.

Fallout from FTX Collapse

The downfall of FTX has had widespread consequences. Sam Bankman-Fried, FTX's founder, was convicted in November 2023 on seven criminal counts, including wire fraud and conspiracy, and sentenced to nearly 25 years in prison. Sister trading firm Alameda also collapsed, and its CEO, Caroline Ellison, was sentenced to two years for her role in the FTX debacle. Former executives Gary Wang and Nishad Singh also faced charges, with Wang's sentencing set for later in November and Singh's scheduled for this month.

Tax Concerns for Creditors

While many creditors are set to receive their cash payouts, concerns have been raised about the tax implications of receiving their claims in cash rather than cryptocurrency. David Adler, a lawyer representing some creditors, warned that this could lead to significant tax burdens, an issue discussed during Monday's hearing. However, the court ultimately upheld the decision to issue cash payments, with Steven P. Coverick of Alvarez & Marsal North America, LLC explaining that FTX lacked the necessary cryptocurrency holdings to make in-kind distributions.

With the reorganization plan now approved, FTX’s creditors are set to receive their payouts in cash, concluding a key chapter in the aftermath of the exchange's collapse. However, the controversy over how these payouts should be structured, and the complete write-off of FTX’s FTT tokens, serves as a reminder of the lingering complexities surrounding the downfall of one of the largest crypto exchanges in history.