FTX Bankruptcy Judge Approves Reorganization Plan with Cash Payouts

FTX Bankruptcy Case: Judge Approves Reorganization Plan

Two years after the dramatic collapse of the FTX exchange, a significant milestone has been reached in the U.S. bankruptcy proceedings. A U.S. bankruptcy judge has officially approved the company's reorganization plan, setting the stage for creditors to recover their claims.

Details of the Approval

During a recent hearing, Judge John Dorsey of the U.S. Bankruptcy Court for the District of Delaware endorsed a plan allowing creditors to recover at least 118% of their claims in cash. This decision comes as a pivotal moment in the Chapter 11 bankruptcy process initiated after FTX filed for bankruptcy in late 2022 amid serious allegations of fraud and misconduct.

Strong Support from Creditors

The reorganization plan garnered overwhelming support, with approximately 94% of creditors in the "dotcom customer entitlement claims" class (totaling nearly $6.83 billion in claims) voting in favor of the cash payout. Despite this favorable outcome, some creditors expressed dissatisfaction with the decision.

Call for Cryptocurrency Payments

Sunil Kavuri, who represents the largest creditor group of FTX, argued against the cash payout, advocating for payments in the form of cryptocurrency instead. However, Judge Dorsey ultimately dismissed this suggestion, emphasizing that there was no basis for FTT tokens, FTX’s native cryptocurrency, to recover in value. "FTT tokens were inextricably intertwined with the debtors," Dorsey stated, further noting that since the exchange will not be revived, the prospects of token value increasing are non-existent.

Rebranding Plans for FTX Dismissed

In earlier discussions, there was speculation about the potential rebranding of the FTX exchange under a planned "FTX 2.0" initiative. However, this idea was ultimately ruled out due to the lack of substantial investor interest. FTX CEO John J. Ray III had solicited potential investors for a reboot earlier but faced overwhelming challenges in securing commitment.

Consequences of the FTX Collapse

The fallout from FTX's collapse has been extensive. Founder Sam Bankman-Fried was convicted in November 2023 on multiple counts, including wire fraud and conspiracy, resulting in a nearly 25-year prison sentence. Additionally, the sister trading firm Alameda has also faced turmoil, with its CEO, Caroline Ellison, sentenced to two years for her involvement in the FTX scandal. Furthermore, former executives Gary Wang and Nishad Singh have also been charged, with sentencing dates approaching.

Tax Implications for Creditors

As creditors prepare to receive cash payouts, there are growing concerns regarding the tax implications of these payouts versus cryptocurrency distributions. David Adler, an attorney for some creditors, has cautioned that this may introduce considerable tax burdens. This topic was discussed during the recent hearing, but the court ultimately backed the decision for cash payments, as FTX lacks the necessary cryptocurrency holdings for in-kind distributions. Steven P. Coverick from Alvarez & Marsal North America, LLC, confirmed this assessment.

Conclusion

The approval of FTX's reorganization plan is a crucial step toward resolution for creditors. While cash payouts have been favored, the emerging tax implications may cause future complications for those affected. As the case moves forward, it remains essential to monitor the unfolding developments in the FTX saga.