FTX compensation is just around the corner: You must choose the claim procedure before mid-August, and creditors with claims below $50,000 can receive a one-time repayment

Author: Nancy, PANews

The huge amount of $16 billion that FTX is about to pay is considered to be an important buying force to boost the crypto market. Recently, the FTX restructuring plan has entered the voting stage. In this article, PANews has sorted out the key information of creditors' attention, such as the key nodes of compensation, the objects of claim and the compensation plan.

The voting window closes on August 17 to choose between Bahamas or U.S. claim

Recently, the FTX Unsecured Creditors Official Committee (UCC) posted on the X platform that FTX debtors are sending comments and ballots to customers and creditors through Kroll to vote on the customer claims plan. The deadline for this voting plan is 05:00 Beijing time on August 17, and the voting results will be announced 7 days before the hearing. The proposed date for the confirmation plan hearing is 23:00 Beijing time on October 7.

These creditors are mainly divided into three types: "with voting rights", "without voting rights but deemed to have accepted the plan", and "without voting rights but deemed to have rejected the plan". Specifically, users holding fiat currencies or cryptocurrencies other than FTT will have the right to vote, while those holding only FTT/NFT will be deemed to have rejected the plan and have no right to vote. And they are divided into different categories according to the compensation entity, amount and type, most of which are Class 5A, Class 7A and Class 13-18.

Among them, Class 5A is for FTX.com customers with claims value exceeding US$50,000; Class 7A is for FTX.com customers with claims value less than US$50,000; Class 13-18 will not be able to obtain any claims and will not have the right to participate in the voting, including equity interests, FTT and small claims holders.

Both Class 5A and Class 7A FTX.com customers can choose to pursue their claims through FTX DM in the Bahamas liquidation process or through the United States, but users can only receive compensation from one process, and the decision cannot be reversed or changed. Regardless of which process a creditor chooses to pursue their claims, they will receive substantially the same return at the same time, assuming that the plan is effective and meets all customer KYC, AML, and tax reporting requirements.

However, the two compensation processes each have their own advantages. For example, the FTT/small claims holding that is not supported by the United States may be able to obtain claims in the Bahamas process. The liquidation and reorganization case led by John Ray in the United States controls most of FTX's assets and is more likely to be compensated.

In addition, in terms of taxation, non-US creditors will not be affected by the 30% withholding tax in the United States. According to the document, the ad hoc committee of non-US customers composed of international creditors has represented more than 31 countries around the world and has more than 60 members. As of June 28, 2024, the committee holds a total of approximately US$4.5 billion in claims for Dotcom customers (customers using the FTX.com exchange).

Class 7A creditors can receive a one-time payment and prefer stablecoins

If the bankruptcy protection plan is approved, all FTX.com customers are expected to be paid in full, with an estimated claim amount of 119 to 143 cents per dollar, plus post-petition interest on unpaid claims calculated at a consensus rate of 9% from the filing date to the applicable distribution date. The first interim dividend distribution is expected to be paid in late 2024 or early 2025, according to the claims user guide published by FTX's joint official liquidator, PricewaterhouseCoopers.

Among them, 7A claims are 119%, and are expected to receive a lump sum payment within 60 days, accounting for 98% of the creditors; 5A claims are expected to recover between 129% and 143%, but after full payment and application interest, the remaining value will be obtained through the distribution of the supplementary relief fund, which is expected to be funded by the recovery funds that should have been paid to senior subordinated government bondholders. From the rules, compared with 7A, 5A will be paid in multiple stages, and the specific time is not clear, but they can also obtain convenient claims by agreeing to reduce the claim amount to less than $50,000.

The order of compensation is also crucial to the interests of creditors. Previously, the IRS pushed $685 million of the $885 million claim to be paid after customers were fully repaid due to objections from creditors. Recently, FTX reached a settlement with the Commodity Futures Trading Commission (CFTC), with the $4 billion claim ranked after creditors and interest. The payment to the CFTC will be transferred to the Supplemental Relief Fund to compensate severely damaged cryptocurrency holders (only paid if there is sufficient funds).

In terms of compensation, FTX creditors previously said that cash repayment would cause customers to pay taxes on the cash they received, and they would rather receive distributions in the form of stablecoins rather than cash. In response, the UCC stated that the committee would urge debtors to provide stablecoin options to as many creditors as possible.

The UCC believes that although the reorganization plan is not perfect, it is the best solution to maximize the compensation for creditors. If the Chapter 11 reorganization is converted to a Chapter 7 liquidation procedure due to creditor opposition, the recovery amount will be reduced, the compensation time will be extended, and the litigation costs will increase. Therefore, the committee encourages creditors to vote in favor of the plan.