The collapsed cryptocurrency exchange FTX is nearing the final stages of bankruptcy resolution, according to recent reports. The firm’s restructuring team has put forward a comprehensive plan to return billions of dollars owed to creditors and affected customers.
The proposed FTX reorganization strategy outlines the process for distributing available funds from the liquidation of the company’s remaining crypto assets. This payout process intends to compensate, at least partially, major creditors, including FTX platform users who held account balances in cash and cryptocurrencies when the exchange filed for bankruptcy last November.
Seeking Creditor Consensus
FTX’s proposed reorganization plan will be put forward for a creditor vote, allowing certain classes of creditors to approve or reject the terms. In a statement, FTX highlighted the collaborative effort underpinning the plan, noting that “many compromises” were made to create “the best, most equitable and economical outcome for all creditors.”
For the plan to take effect, approval thresholds based on both the dollar value of claims and the number of claimants must be met across voting classes. However, FTX can potentially override and “cram down” the plan on dissenting creditor classes through bankruptcy court powers. This maneuver requires demonstrating the solution is “fair and equitable” to creditors based on legal standards.
Overcoming Key Issues
However, FTX’s reorganization plan leaves some critical questions unsettled, introducing uncertainty around revival prospects for the defunct cryptocurrency trading venue, the valuation approaches for certain crypto tokens, and precise creditor repayment levels.
The plan requires further discussion and likely additional modifications before being finalized and submitted for formal approval. A creditor vote is scheduled within the next year, followed by a ruling from U.S. Bankruptcy Judge John Dorsey.
So far, FTX and the official committee of unsecured creditors have found consensus around the broad outlines of the proposed strategy. But stakeholder groups will closely scrutinize the unfolding specifics of the plan as the bankruptcy process advances.
Weighing Liquidation and Investment Options
Last month, FTX appointed investment banker Kevin Cofsky to evaluate liquidation scenarios versus alternatives like forming strategic partnerships or selling FTX’s trading platform.
However, the exchange has yet to reveal its preferred path forward.
The downfall of FTX and its sister hedge fund Alameda Research stemmed from massive fraud engineered by founder Sam Bankman-Fried. His misconduct spawned an acute liquidity crisis that ultimately cratered the exchange in November 2022.
With Bankman-Fried awaiting criminal sentencing, FTX’s restructuring team faces complex challenges disentangling assets and distributing proceeds to numerous customer and creditor groups. As the bankruptcy case progresses over 2023, many eyes will focus on the outcome.
