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FTX Creditors Denied Bankruptcy Restructuring Proposal

#FTX #Cryptocurrency #Bankruptcy #ReorganizationPlan #CreditorsObjection #CryptoExchange #BankruptcyCode #InKindDistributions

Creditors of the bankrupt cryptocurrency exchange FTX have recently expressed their disapproval of the platform’s proposed reorganization plan, underlining its deficiencies in alignment with the Bankruptcy Code. They argue that the proposed strategy overlooks crucial issues regarding property rights, fails to meet the best interest test essential for bankruptcy proceedings, and presents an inconsistent analysis concerning the liquidation of debtors’ assets. This objection was officially filed in the U.S. Bankruptcy Court for the District of Delaware by FTX creditors including Ahmed Abd El-Razek, Pat Rabbitte, Noia Capital, and particularly vocal creditor activist, Sunil Kavuri.

The timing of this objection comes at a critical juncture, one month after FTX announced its plans for reorganization and repayment to its customers. Back in May, the platform revealed it had accumulated more than the necessary funds to satisfy customer repayments and close its bankruptcy case. This announcement followed the platform’s dramatic collapse in 2022, which saw losses close to $11 billion for its customers and other affected parties. Astonishingly, the bankruptcy estate reported a fund accumulation of over $16 billion, resulting from asset sales and the consolidation of funds across various entities.

FTX’s generous repayment proposal under this reorganization plan included paying back 98% of creditors with claims under $50,000, approximately 118% of their allowed claims, within just 60 days post-approval of the plan. Additionally, non-governmental creditors were to be repaid fully, alongside a potential 9% in interest payments. Despite the crypto community’s positive response to the plan, Kavuri, alongside various creditors, raised significant concerns regarding its terms, particularly advocating for “in kind” repayments to avoid taxation issues for creditors. This method would allow creditors to possibly bypass a tax event, a consideration the objectors argue could avoid unnecessary financial hardships if implemented properly. The objectors suggest that FTX could collaborate with another crypto exchange to facilitate these in-kind distributions, indicating possible solutions to the challenges posed by their proposal. This entire scenario underlines the complexities and ongoing negotiations inherent in resolving one of the most significant bankruptcies in the cryptocurrency world.

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