- FTX Debtors propose Customer Shortfall Settlement as part of an Amended Plan of Reorganization, expected to be filed by December 16, 2023.
- Over 90% of worldwide distributable value projected to be received by FTX and FTX US customers if the Amended Plan is approved by Q2, 2024.
FTX’s Strategy to Rectify Customer Property Litigations
WILMINGTON, Del. – FTX Trading Ltd., operating as FTX.com, along with its associated debtors (collectively referred to as “FTX Debtors”), has unveiled a monumental settlement proposal to address customer asset disputes in their ongoing Chapter 11 proceedings. Termed the “Customer Shortfall Settlement”, this proposition is geared towards integrating it into an updated Plan of Reorganization (hereafter, “Amended Plan”) slated for submission by December 16, 2023.
The FTX Debtors estimate that customers of FTX and FTX US would receive over 90% of distributable value worldwide if the Amended Plan is approved by the Bankruptcy Court by the end of the second quarter of 2024.
Future recoveries for customers and non-customers will depend on…
— Wu Blockchain (@WuBlockchain) October 17, 2023
The crux of the litigation revolved around the assertion that clients of FTX.com and FTX US retained property interests in certain assets, rather than just an unsecured claim at par with mainstream creditors. The new settlement aims to rectify this by furnishing customers a claim against FTX Debtors. While this claim remains unsecured, it’s granted equitable priority over certain properties, either isolated at or taken from the exchanges.
Emerging from rigorous negotiations with key stakeholders, including the Executive Committee of the Ad Hoc Committee of Non-U.S. Customers and the Official Committee of Unsecured Creditors, the Customer Shortfall Settlement represents a significant stride towards finalizing the complications around the asset disarrays.
In the words of John. J. Ray III, CEO and Chief Restructuring Officer of FTX Debtors, “This proposed resolution marks a pivotal progression in our case.” Ray highlights the paramount role played by the independent Board of Directors, commending their swift and decisive actions during the turbulence.
Core Features of the Amended Plan and Implications for Customer Recoveries
The Amended Plan, bearing substantial resemblance to the draft unveiled on July 1, 2023, primarily focuses on:
- Categorizing almost all FTX assets into three distinct pools, based on the prevailing conditions when the Chapter 11 proceedings commenced.
- FTX.com and FTX US customers are granted a “Shortfall Claim” against a general pool, pegged to the projected value of missing assets at their respective exchanges.
Factoring both the priority and non-priority segments of the Shortfall Claim, the FTX Debtors anticipate that the cumulative clientele of FTX.com and FTX US would receive an impressive 90% or more of the global distributable value, contingent on the Amended Plan’s sanction by the Bankruptcy Court by mid-2024.
However, several variables will determine future recoveries. These include tax and governmental claim resolutions, the continual asset recovery endeavors by the FTX team, fluctuations in digital asset prices, and a plethora of other yet-to-be-resolved aspects.
Regarding the proposed Preference Settlement Offer, eligible customers are presented with an option to clear ambiguities around potential preference exposures. This entails adjusting their claim (or offering a cash equivalent) to a defined amount on the Amended Plan ballot.
For comprehensive details and court-related documents, stakeholders and interested parties can visit https://cases.ra.kroll.com/FTX/.