As an experienced analyst with a background in bankruptcy law, I find the objection raised by FTX creditors to be significant. The concerns raised in the objection, particularly regarding property rights issues and failure to satisfy the best interest test, are not trivial matters that can be overlooked.
FTX’s creditors have raised concerns over the crypto exchange’s proposed restructuring plan in bankruptcy court. They argue that the plan does not satisfy specific conditions set forth in the Bankruptcy Code.
Based on a post from Sunil Kavuri, a vocal creditor advocate on Twitter, the opposition raises concerns that the proposed reorganization plan disregards property rights matters, fails to meet the standard of what is in the best interests of creditors, and displays conflicting assessments regarding the liquidation of debtors.
Creditors Object to FTX Bankruptcy Plan
Ahmed Abd El-Razek, Pat Rabbitte, Noia Capital, and Kavuri, who are creditors of FTX, filed an objection in the U.S. Bankruptcy Court for the District of Delaware on June 6. This was a month after FTX had filed for reorganization and put forward a plan to reimburse its customers.
On May 7, FTX disclosed that they had accumulated over $16 billion through asset sales and consolidation of funds from different sources, which surpassed the required amount for settling debts and wrapping up the bankruptcy proceedings initiated after the exchange’s collapse in 2022. Despite the substantial losses totaling around $11 billion suffered by customers and other concerned parties during the exchange’s failure, the estate reported this unexpectedly large surplus.
In the proposed reorganization scheme, FTX will compensate creditors with debts under $50,000 at approximately 118% of their stated claims within two months of plan approval. Meanwhile, non-governmental creditors are set to receive their full claimed amounts and an extra potential 9% interest payment.
As a crypto investor, I’ve noticed that the crypto community has generally welcomed the proposed plan. However, I’ve also seen some concerns raised by certain creditors, including Kavuri, regarding the plan’s specific terms.
In Kind Distributions
Opponents are advocating for FTX to issue in-kind repayments to creditors instead of making cash distributions, aiming to prevent creditor taxes from being incurred.
The Debtors’ suggested plan appears to unfairly burden customers with extra taxes by requiring them to receive cash payments instead of in-kind distributions. By providing in-kind distribution instead of cash settlements, customers might be able to skirt tax reporting requirements.
Kavuri and the other creditors propose that the FTX bankruptcy estate could reach an arrangement with yet another cryptocurrency exchange for distributing assets in-kind instead of handling it themselves, which might prove challenging.
The three objected to the suggested plan for several reasons. Legally, they found it uncertain. It contained provisions that were not beneficial for the estate. Furthermore, the terms were clear-cut and the debtors had made definite statements.
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2024-06-08 01:30