The ongoing FTX restructuring process has taken a new turn as the Trustee overseeing the case has raised significant objections to the cryptocurrency exchange's revised restructuring plan.
The trustee, Andrew R. Vara, along with a group of creditors, filed a complaint highlighting multiple flaws in the proposed plan, which the FTX Estate (which acts as a recovery agent for the failed exchange's creditors) said had broad support from creditors.
The news comes after bankrupt cryptocurrency exchange FTX announced that its revised restructuring plan had received overwhelming initial support from its voting creditors.
One of the Trustees' main concerns centered on the proposed legal exemptions in the restructuring plan. Vara argued that the plan provided too much legal protection for the Estate's managers and advisers.
He argued that these protections go beyond what is normally afforded to Estate professionals under relevant legislation.
“Such an exemption would go far beyond the protection that Estate professionals normally receive where their employment and remuneration are subject to Court approval and supervision throughout the case.”
Source: Kroll
Another key issue raised by the Trustee is the unequal treatment of creditors based on the size of their claims. Vara points out that smaller creditors, with claims typically under $50,000, receive lower rates of repayment (119%) than larger creditors (up to 143%).
This discrepancy, Vara argues, is unwarranted, especially since FTX is expected to have enough cash to pay all creditors the same amount.
“There is no apparent difference in the legal properties of these customers’ claims,” Vara asserted, questioning the rationale behind the proposed distribution plan.
The handling of costs related to the data breach incurred by FTX's service provider, Kroll, has also been criticized. Vara's filing notes that Estate Experts has sought millions of dollars in compensation for responding to the breach.
In addition to the US Trustee's objections, a group of FTX creditors, led by Sunil Kavuri, filed a separate complaint. Kavuri, representing the largest group of FTX creditors, has criticized the restructuring plan.
Kavuri argues that creditors should have the option to receive cryptocurrency – such as Bitcoin – instead of its equivalent value in US dollars. He claims that this could help creditors avoid having to report and pay taxes on the transaction, leading to better recovery after tax calculations.
Kavuri’s filing also points out that BlockFi, another bankrupt crypto company, was able to meet similar requirements with the help of Coinbase, suggesting such a solution is feasible.
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