FTX Estate Proposes Generous Creditor Payouts

The FTX bankruptcy estate has unveiled a reorganization plan poised to significantly exceed the required payouts to creditors, a remarkable development 17 months following the cryptocurrency exchange’s Chapter 11 bankruptcy filing. According to the estate, an impressive 98% of creditors are slated to receive at least 118% of their allowed claims in cash within 60 days of the plan’s activation. The remaining creditors are assured 100% of their claims along with substantial compensation for the “time value of their investments.”

This ambitious payout plan is pending final approval from the bankruptcy court. It represents a substantial turnaround from FTX’s financial status at the time of its bankruptcy, which showed an $8 billion shortfall in customer funds. The estate now estimates that the total value of property converted to cash for distribution will fall between $14.5 and $16.3 billion, showcasing a significant recovery effort.

Throughout the past year and a half, FTX has diligently worked to reclaim funds through various means, including recouping $460 million from Modulo Capital and $175 million from the bankrupt crypto lender Genesis Global. Moreover, FTX negotiated the sale of its claim against Genesis and completed sales of significant assets such as its crypto derivatives firm LedgerX for $50 million and a major stake in AI startup Anthropic for $884 million.

Additionally, the sale of locked-up Solana (SOL) tokens, despite controversy from some creditors over the discounted prices, has contributed to the estate’s asset recovery initiatives.

However, not all stakeholders view the reorganization plan positively. Sunil Kuvari, a major creditor and vocal critic, expressed dissatisfaction on social media platform X regarding an exculpation clause that absolves the estate’s law firm, Sullivan & Cromwell, from liability related to asset sales. The high legal costs have also drawn criticism.

Another significant aspect of the recovery involves negotiations with governmental bodies. The estate’s settlement proposal includes resolving a $24 billion claim from the Internal Revenue Service for a $200 million cash payment and a $685 million subordinated claim. Furthermore, a potential agreement with the U.S. Department of Justice could distribute over $1.2 billion to creditors, contingent upon DOJ approval.

The FTX estate’s reorganization plan outlines a proactive and substantial approach to addressing creditor claims, highlighting both the complexities of large-scale financial recoveries in the cryptocurrency sector and the ongoing challenges posed by legal and regulatory negotiations.