A group of creditors of the now-collapsed FTX have moved to court, objecting to the cryptocurrency exchange's bankruptcy reorganization plan, which would pay unsecured creditors the full amount of their claims, if not more.
Formal objection from FTX creditors
A group led by Sunil Kavori, one of FTX's creditors, filed the objection yesterday (Thursday) in US Bankruptcy Court. They reject the reorganization plan for several reasons, including asserting that it does not serve the best interests of creditors.
The objection also highlighted that the plan ignores property rights issues. Furthermore, he noted that since the settlement with creditors would be made in cash, it would trigger a taxable event.
In addition, the creditors objected to the release of the funds to the creditors, who are the property of FTX. They claimed it was a way to distribute stolen money. Other objections include vague terms of service, inconsistency in the analysis of liquidation of debtors, and failure to disclose adversarial procedures. Creditors also want the examiner's report and updated IRS disclosure statement included.
CAHC filed an objection to the FTX plan 1) The plan is not confirmable under the law 2) It includes issuances that are not in the best interest of the estate 3) It ignores the equity issue 4) It does not meet the best interest test pic.twitter.com/rpXxz0tmP2
— Sunil (Champion FTX Creditor) (@sunil_trades) June 6, 2024
FTX Payment Plan
The formal objections came a month after FTX announced its plans to repay creditors. Under the proposed plan, the collapsed stock exchange would pay up to 118% of claims to creditors with claims of $50,000 or less, which represents about 98% of creditors. All settlements will be made in cash.
Under the plan, all non-government creditors will also receive their full claims, along with 9% interest calculated from the date of filing for bankruptcy. According to the exchange, this will meet the “time value of their investments.”
However, a group of FTX creditors led by Kafouri quickly described the repayment plan as “insulting.”
FTX filed for bankruptcy in November 2022 with an $8 billion deficit. Although the exchange's case looked bleak when it filed for Chapter 11 protection, bankruptcy administrators found a large amount of cryptocurrency holdings and other assets, raising a large sum to repay creditors.
Furthermore, when the exchange went bankrupt, Bitcoin was trading at around $16,000, but it recently peaked at over $72,000. In January 2024, FTX's creditors also filed for repayment at the current market rate instead of the lower rate during the bankruptcy filing.
This article was written by Arnab Shomi at www.financemagnates.com.