FTX Proposes Repayment Plan

FTX's latest plan to repay creditors is part of an ongoing bankruptcy saga that is far from over. The plan, disclosed on a Tuesday, aims to settle creditor debts fully by using November 2022 asset prices, potentially including interest. While FTX has rounded up between $14.5 and $16.3 billion, it still owes about $11 billion to its creditors.

Legal experts find the expected returns exceptionally high, with Jonathan Groth from DGIM Law calling them "unheard of" in the crypto world. However, success depends on prompt stakeholder support, a factor Erin Broderick of Eversheds Sutherland emphasized as vital to preserving the plan's value.

FTX's announcement suggested the plan would avoid lengthy and expensive legal disputes. Matthew Gold from Kleinberg Kaplan noted that this might refer to ongoing legal issues, including tax claim mediations.

The proposal intends to settle a massive $24 billion claim from the IRS with a substantial cash payout and a subordinated claim, part of a broader effort to resolve disputes over creditor priorities. This could potentially lead to expensive legal battles if these allocations are contested.

Groth explained that some creditors are dissatisfied because they want repayments at current cryptocurrency prices, which are significantly higher than when FTX declared bankruptcy. Unfortunately, FTX's actual crypto holdings were much less than reported, making full repayment at current market rates infeasible. Despite potential discontent among some creditors, the plan is generally seen as favorable for customers, resulting from intensive negotiations focused on maximizing initial payouts to customers.

The court's approval process involves multiple steps, starting with a disclosure statement hearing scheduled for June 25. Following this, a confirmation hearing will likely be set for 60 days later. Additionally, the plan includes controversial clauses that would protect various entities involved from lawsuits. The legality of these clauses is pending a Supreme Court decision, which will significantly affect their enforceability.

Described as a draft, the plan still requires further negotiation and refinement. The effectiveness of this proposal hinges on the upcoming court hearing, where it might be modified or accepted depending on discussions about these substantial elements.