FTX Failure: Reorganisation plan to forge a fresh future (except for FTT holders)?
Last week FTX, the global crypto exchange that is now collapsed and going through a US Chapter 11 bankruptcy procedure, issued a draft plan of reorganization in an attempt to facilitate creditor feedback and to seek consensual resolution of key issues in the bankruptcy.
The FTX Debtors emphasised that the reorganization plan, which contains a draft term sheet summarising key restructuring terms, is merely a draft to be commented on. This draft is not the formal plan for creditors to vote on.
FTX Debtors said they have decided to
file the draft Plan publicly at a relatively early stage – before the expiration of customer bar dates, the completion of pending investigations, the resolution of important negotiations
Some of the key terms from the plan include:
Global settlement will cancel most FTX intercompany claims;
All customers of FTX.com constitute a single class (except NFT holders), with claim amount equal to the liquidated USD value of their customer entitlements at the petition time of the Chapter 11 proceeding;
Fair market value of crypto assets will be determined on the Valuation Matrix filed by the Debtors, which was informed by independent experts;
There will be an "anti double dip" arrangement requiring that each holder will receive the same recovery as another holder in a similar situation. The plan will require any holder of a claim to submit satisfactory evidence that such holder has not requested or received compensation for the same losses underlying such claim in connection with any other insolvency proceeding (such as the separate insolvency proceeding which FTX Australia and FTX DM are going through); and
FTT token holders will likely receive nothing under the plan.
Importantly, this plan discussed a potential reboot of an offshore FTX exchange to increase creditor recoveries:-
the Debtors may decide to establish in collaboration with third party investors a new company in a jurisdiction outside of the United States to operate a “rebooted” offshore platform not available to U.S. investors (an “Offshore Exchange Company”) or enter into a merger or similar transaction
However, on the same day this plan was released, the Official Committee of Unsecured Creditors voiced their strong opposition:-
[The Plan] was unilaterally proposed and largely ignores the Committee’s suggestions that were raised (but not negotiated)
The Committee also accused the Debtors of filing their plan to meet a deadline the Debtors had previously committed to in order to show an “appearance of progress” imply that none had taken place. The Committee asserts that any successful reorganization plan must:
place control of the post-reorganization entities in the hands of "qualified parties" with "relevant experience" in the cryptocurrency markets, and who are selected by the Committee (as the representative of the creditors) and not the Debtors;
creating a regulatory-compliant recovery token (or tokens) and facilitating a re-started FTX exchange to enhance creditor recoveries; and
properly allocating value to the creditors most injured by the collapse.
If followed, such suggestions would be quite expensive and appear to place the Committee in a powerful position which would be unusual under a reorganisation.
Filing of the draft plan follows the second interim report released late June 2023 which revealed that the US debtors have recovered nearly USD$7 billion in liquid assets with prospect of more recoveries and the value of the assets increasing if crypto-markets rise.