FTX, a failed cryptocurrency exchange, is seeking client approval for its Chapter 11 plan to compensate victims and address government penalties resulting from a fraudulent collapse of the platform in November 2022.
Judge John Dorsey’s decision marks an important step forward in the two-year bankruptcy process, with creditor votes playing a critical role in the restructuring efforts. While FTX’s plan has the support of the majority of the client committee, a candid group opposes it and demands substantial modifications.
FTX to Offer 119% Asset Recovery to Clients
According to Bloomberg, under the proposed plan, most FTX clients are expected to recover 119% of their assets as of the date the company filed for Chapter 11 in November 2022. Other creditors could receive up to 143% of the amounts owed to them.
FTX’s legal team insists that bankruptcy law requires claims to be valued based on their worth at the time of the claim, despite subsequent cryptocurrency price increases.
The decision to seek votes from its client base stems from the company’s desire to gather feedback on the repayment plan from previously uninvolved parties.
Additionally, the company is still in negotiations with federal authorities and exploring using government claims against FTX to compensate affected clients.
FTX Resolves $24 Billion IRS Tax Claim
It’s worth noting that FTX has resolved a $24 billion tax claim with the IRS. Under the settlement terms, the company will pay $200 million to the IRS within 60 days of implementing the proposed restructuring plan.
The settlement agreement allows FTX to pay a small portion of the IRS claim, clearing the way for the exchange to allocate important client recovery funds.
The IRS will also receive a lower-priority claim of $685 million, which will be paid to clients and other creditors in a secondary manner based on fund availability. These details were outlined in a document filed by FTX in a Delaware bankruptcy court in the United States.
SBF’s Fraud Conviction Conceals Bankruptcy Proceedings
FTX is currently monetizing its assets as the platform reportedly lacks independent digital assets directly related to claims against the exchange. Instead, FTX holds a pool of assets obtained from stolen customer funds, posing a complex challenge in the compensation process.
Clients must vote on the Chapter 11 plan by August 16. Judge Dorsey will then review and potentially approve the plan on October 7 based on the client voting results.
FTX filed for bankruptcy after its founder, Sam Bankman-Fried (SBF), closed the cryptocurrency trading platform in 2022 and handed control over to bankruptcy professionals. Bankman-Fried subsequently faced a 25-year fraud conviction, and he recently announced plans to appeal.
At the time of writing, the trading price of the exchange’s native token FTT is $1.43, up 2% in the past 24 hours and only 27% year-to-date.
Image courtesy of DALL-E, chart from TradingView.com.