In a potential breakthrough for customers of the defunct crypto exchanges FTX and FTX.US, a proposed settlement could result in the return of over 90% of their assets by the second quarter of 2024. This development follows negotiations between FTX debtors and creditors.
Major Milestone in Chapter 11 Case
On October 17, FTX debtors announced a significant advancement in their Chapter 11 case. The breakthrough came after extensive discussions with the unsecured creditors’ committee, non-U.S. customers, and class action plaintiffs regarding disputes over customer property.
Earlier today, the FTX Debtors filed an amended Plan Term Sheet (https://t.co/LgZCcjxP1m) that the Committee supports and which it negotiated on behalf of creditors and customers.
— Official Committee of Unsecured Creditors of FTX (@FTX_Committee) October 17, 2023
The FTX debtors submitted a notice regarding the proposed settlement to a Delaware-based U.S. bankruptcy court on October 16 for information purposes. However, they intend to make an official filing seeking court approval by December 16.
Shortfall Claim and Asset Distribution
One pivotal element of the amended plan is the “shortfall claim.” FTX debtors estimate that customers of FTX.com and FTX.US collectively would recover 90% of available assets. This translates to an estimated $8.9 billion for FTX.com and $166 million for FTX.US. If approved, FTX anticipates these funds will be disbursed by the end of the second quarter of 2024.
John J. Ray III, CEO and chief restructuring officer of FTX, expressed satisfaction with the terms of the settlement. He highlighted the value created for customers in a situation that initially seemed destined for substantial losses.
Asset Pools and Clawbacks
The amended plan involves FTX dividing assets into three pools: assets segregated for the benefit of FTX.com customers, U.S. customers, and a general pool of other assets. The shortfall claim covers only the first two groups. However, FTX debtors expect that customers of both exchanges will not receive full payments, with FTX.com customers likely facing a greater percentage of losses.
Additionally, part of the proposed plan outlines reductions in claims for customers who withdrew over $250,000 from the exchange within nine days of the bankruptcy. Such customers would see a 15% reduction in their claims. However, claims under $250,000 would not be subject to reductions.
Exclusion of Insiders and Affiliates
The amended plan includes provisions for excluding insiders, affiliates, and customers who may have had knowledge of the commingling and misuse of customer deposits and corporate funds. This exclusion is part of the settlement proposal.
Former FTX CEO Sam Bankman-Fried is currently on trial for alleged fraud related to FTX’s collapse into bankruptcy in November of the previous year.