FTX has received court approval to ask creditors whether they would be willing to receive recovered funds in cash or in the form of cryptocurrencies at their current market value, under FTX’s current liquidation plan.
The voting plan of FTX was approved by Judge John Dorsey of the U.S. Bankruptcy Court in Delaware on June 25.
Several creditors of FTX expressed dissatisfaction with the latest liquidation plan the company put forward in May. The plan shows that 98% of the creditors (those with claims below $50,000) will receive 118% of the return based on the dollar value of assets at the time of FTX’s November 2022 bankruptcy filing.
However, many FTX creditors are seeking physical cryptocurrency payments because the total market cap of the cryptocurrency market has grown by 165% since the exchange went bankrupt.
From the perspective of some creditors being unwilling to accept cash repayments, the trading price of Bitcoin was about $16,900 when FTX filed for bankruptcy, but at the time of writing, the price of Bitcoin has surged by 265% to $61,770.
Andy Dietderich, lawyer for FTX, stated during the court hearing that the purpose of the vote is to collect feedback from a large number of FTX customers who have not yet participated in repayment negotiations.
Lawyers for FTX emphasized that the bankruptcy law requires the company to value creditors’ claims at the time of FTX’s bankruptcy filing, which is in line with its proposed plan.
They added that the proposed cash repayment plan would be easier to implement because creditors would not need to pay capital gains tax.
It is worth noting that even if creditors vote in favor of repaying in physical form with cryptocurrency, the court will not be forced to approve them.
Court documents show that creditors will vote on the plan by August 16, and Dorsey will decide whether to approve the plan by October 7.
FTX’s creditors will vote on the plan by August 16. Source: Kroll
Since filing for bankruptcy, FTX has recovered $11.4 billion in cash, but Dietderich expects this figure to rise to $12.6 billion by October 31, when FTX’s bankruptcy protection plan may take effect.
FTX was considered one of the world’s largest cryptocurrency exchanges before it collapsed in November 2022. About $8 billion of funds from millions of customers were misappropriated. Most of the funds were misused by FTX’s trading firm, Alameda Research, triggering a liquidity crisis when customers sought to cash out their assets.
The defunct exchange has been handed over to FTX’s current CEO John Ray, a turnaround expert who is still actively involved in the bankruptcy case.
Meanwhile, the former CEO of the company, Sam Bankman-Fried, was convicted of multiple fraud and money laundering charges in November 2023 and was sentenced to 25 years in prison in March.