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FTX Debtors have announced the settlement of customer property disputes, stating they had reached a significant milestone in their Chapter 11 discussions after extensive discussions.
The announcement means that customers of FTX and FTX.US could see over 90% of assets returned to them by mid-2024.
A Major Milestone
According to the statement released by the FTX Debtors, they reached a major milestone in their Chapter 11 case after concluding extensive discussions with the unsecured creditors’ committee. This is a committee of non-United States customers and class action plaintiffs related to customer property disputes. The FTX Debtors had filed a notice of the proposed settlement with a Delaware-based US bankruptcy court on the 16th of October. They also had to submit an official court filing seeking the court’s approval by the 16th of December. FTX said in its statement,
“FTX Trading Ltd. (d.b.a. FTX.com) and its affiliated debtors (together, the “FTX Debtors”) today announced a proposed settlement of customer property disputes in their pending chapter 11 cases (the “Customer Shortfall Settlement”). The Customer Shortfall Settlement will be proposed as part of an amended Plan of Reorganization (the “Amended Plan”), to be filed by the FTX Debtors by the 16th of December, 2023. If approved by the Bankruptcy Court, the Customer Shortfall Settlement would resolve the customer property litigation filed against the FTX Debtors and facilitate confirmation of the Amended Plan in the second quarter of 2024.”
Customers To See Assets Returned
The amended plan also consists of the shortfall claim, in which FTX debtors have estimated that customers of FTX and FTX.US would collectively receive 90% of the available assets for distribution. The shortfall claim is estimated to be around $8.9 billion for FTX.com and $166 million for FTX.US. If the bankruptcy court approves the plan, FTX expects the funds to be disbursed to customers by the second quarter of 2024.
CEO and the chief restructuring officer of FTX, John J Ray III, stated he was pleased with the terms of the settlement, adding that the debtors and their creditors have created significant value from a situation that could have been a near-total loss for FTX customers.
“The proposed settlement of the customer property issues is another major milestone in our case. Together, starting in the most challenging financial disaster I have seen, the debtors and their creditors have created enormous value from a situation that easily could have been a near-total loss for customers. I would especially like to recognize the important role of the independent Board of Directors, who quickly responded to the call to duty at a time of crisis. They bring wisdom and guidance, often in the face of adversity, that has been and continues to be instrumental throughout the difficult process of bringing order and resolution to these cases.”
The Amended Plan
The amended plan is similar to the draft plan that the FTX Debtors filed for discussion purposes on the 1st of July, 2023. The FTX debtors would divide the assets in question into three pools based on circumstances at the start of the Chapter 11 cases. These would be assets segregated for the benefit of FTX.com customers, assets segregated for the benefit of FTX.US customers, and a general pool of other assets.
“The Plan Term Sheet is a compromise between the Committee, the Debtors, the ad hoc customer committee and other representatives on a range of issues that balance the rights of customer and non-customer creditors across the U.S. and foreign debtors.”
However, the Debtors have anticipated that customers of both exchanges will not be paid in full, and FTX.com would see a greater percentage of losses.
Observers have also noted that a part of the proposed plan will see to it that those customers who withdrew over $250,000 from the exchange within the first nine days of bankruptcy would see their claims reduced by 15% of the amount. However, claims under $250,000 will not be subject to such a reduction.
“Eligible customers that have a preference settlement amount of less than $250,000 during the nine-day period would be able to accept the settlement without any reduction of claim or payment.”
As part of the amended plan, FTX can exclude from the settlement any insiders, affiliates, and customers who may have had knowledge of the misuse and comingling of customer deposits and corporate funds. Meanwhile, former FTX CEO Sam Bankman-Fried’s trial is about to enter its third week on matters related to the collapse of FTX and its associated entities.
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