FTX Creditors Rejected Bankruptcy Reorganization Plan

Creditors of bankrupt cryptocurrency exchange FTX have filed an objection to the platform's proposed reorganization plan, citing its failure to meet certain requirements of the bankruptcy code.

according to tweet By FTX creditor activist Sunil Kavori, the objection argues that the reorganization plan ignores equity issues, does not meet the best interest test, and contains an inconsistent analysis of liquidation debtors.

Creditors object to FTX's bankruptcy plan

FTX's creditors, Ahmed Abdel Razek, BatRabbit, Noya Capital, and Kafori, filed the objection in the US Bankruptcy Court for the District of Delaware on June 6, a month after the cryptocurrency exchange filed for reorganization and proposed a way to repay customers.

On May 7, FTX revealed that it had received more money than was needed to pay the installments and complete the bankruptcy process. Although clients and other affected parties lost nearly $11 billion when the stock market collapsed in 2022, the bankrupt company said it raised more than $16 billion from selling assets and consolidating funds from various entities.

Under the proposed reorganization plan, FTX will pay 98% of creditors with claims of less than $50,000, approximately 118% of their allowed claims, within 60 days after approval of the plan. On the other hand, non-government creditors will receive 100% of their claims and a potential additional interest payment of 9%.

While the cryptocurrency community responded positively to the proposed plan, Kafouri and some other creditors expressed their disagreement with its terms.

In-kind distributions

Objectors are pressing FTX to make repayment distributions in kind to avoid incurring taxes on creditors.

“It is painfully clear that the Debtors' proposed plan would inflict additional hardship on customers by imposing coercive taxes that could be avoided by making an 'in-kind' distribution…if the Debtors, instead of providing cash on account of the claim, made an 'in-kind' distribution To the client, the client may be able to avoid a reporting event for tax purposes.”

Kafouri and other creditors insist that bankrupt FTX can enter into an agreement with another cryptocurrency exchange to make in-kind distributions, because doing so alone could be difficult.

In addition, the trio rejected the proposed plan because it was “legally unconfirmable,” contained exemptions that were not in the best interest of the estate, and contained unambiguous terms of service and statements by the debtors.