FTX has gained court approval to allow creditors to choose between receiving their recovered funds in cash under the current liquidation plan or in crypto at its current market value.
Judge John Dorsey from the United States Bankruptcy Court for the District of Delaware sanctioned FTX’s voting plan on June 25.
Many creditors have expressed dissatisfaction with FTX’s recent liquidation proposal, initially offered in May. This plan guarantees a 118% return for 98% of creditors with claims under $50,000, calculated based on asset values at FTX’s November 2022 bankruptcy filing.
Some creditors are advocating for receiving payments in crypto, citing the market’s 165% increase in total value since FTX’s collapse. For example, Bitcoin was trading around $16,900 when FTX filed for bankruptcy, but has since surged 265% to $61,770.
FTX’s lawyers emphasized that bankruptcy regulations necessitate valuing claims as of the Chapter 11 filing, aligning with their proposed plan. They also argued that a cash repayment plan would simplify implementation, avoiding potential capital gains taxes for creditors.
Creditors have until August 16 to vote on whether they prefer in-kind crypto repayments, though the court isn’t obligated to approve this choice. Judge John Dorsey will make a final decision on October 7 based on the creditors’ feedback.
FTX has recovered $11.4 billion in cash since filing for bankruptcy. Dietderich anticipates this amount to increase to $12.6 billion by October 31, when FTX’s Chapter 11 plan could potentially come into effect.
FTX, once among the world’s largest cryptocurrency exchanges, collapsed in November 2022 amid allegations of misappropriating approximately $8 billion from millions of customers. The funds were reportedly misused by FTX’s trading firm Alameda Research, leading to a liquidity crisis when customers tried to withdraw their assets.
Following the collapse, the defunct exchange came under the oversight of FTX’s current CEO, John Ray, a specialist in turnarounds, who remains actively involved in the bankruptcy proceedings.
In contrast, FTX’s former CEO, Sam Bankman-Fried, faced multiple charges of fraud and money laundering, resulting in a conviction in November 2023. He was sentenced to 25 years in prison in March.