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  • L Misthos and S Pettigrove

FTX to make customers whole under new plan of reorganisation

The creditors of defunct crypto exchange FTX will be (somewhat) buoyed by news that their claims will be paid out in full, along with some added compensation. Under FTX's most recent amended Plan of Reorganisation, 98% of creditors are expected to receive at least 118% of their claim, as calculated on 11 November 2022 plus interest, in cash.

Creditor's being made whole was originally considered inconceivable following the infamous FTX collapse in November 2022 with Mr John J Ray III declaring the exchange a 'dumpster fire'. Users were left with their accounts blocked, FTX websites went dark and a great deal of uncertainty settled. The road to recovery become longer still after the US Internal Revenue Service decided to allege that a USD$44 billion tax bill was due.

The road to recovery was grim, but during the 17 month process, the crypto industry began showing signs of life and it rapidly became apparent that FTX's assets vastly exceeded the claims made. Liquidations of investments followed, most recently with the FTX Europe arm selling for $33 million. Meanwhile the prices for FTX claims on the secondary market have tracked the increasing likelihood of a positive return, being near 100c in the dollar at the time of writing.

Around the same time the cryptocurrencies held by FTX (or Alameda Research) at the time of the collapse (as well as profitable investments made by FTX's recently sentenced former-CEO Sam Bankman-Fried using customer's assets) have become significantly more valuable than at the time of collapse.

With the new Plan of Reorganisation predicting the total value of FTX property collected and converted to cash will be between USD$14.5 and $16.3 billion, there is ample recourse for all creditors to be paid in full, per FTX CEO, John J. Ray III:

We are pleased to be in a position to propose a chapter 11 plan that contemplates the return of 100% of bankruptcy claim amounts plus interest for non-governmental creditors.

The Plan of Reorganisation creates a special "convenience class" for creditors who are holding claims of $50,000 or less. 98% of creditors fall into the convenience class, and will receive ~118% of the value of their claim as at the date of appointment, a payout very rarely seen in bankruptcy proceedings at all, let alone proceedings of this magnitude and complexity. Other claims are on track to receive an even higher percentage of their original claim, up to ~140% in some instances.

The proposed plan will be pending approval by the US Bankruptcy Court, which must determine whether the plan is in the best interests of the creditors. If approved, creditors will begin receiving their funds with the convenience class receiving their payments within 60 days of the effective date of the plan, meaning a high prospect of payments being finalised for almost all creditors by the end of this year.

The FTX collapse, which rocked the cryptocurrency industry and was touted as one of the worst due to the devastating impact on creditors, the market and the industry, is now shaping up as an extremely lucky result for creditors, many of whom would naturally prefer their crypto back given price rises but in any collapsed company situation getting back 100c in the dollar is exceedingly rare, and in a collapse of this size and magnitude (with attendant sizes of fees) is even rarer still.

By Michael Bacina, Steven Pettigrove and Luke Misthos


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