FTX plan approved: Victims to receive cash, not crypto

FTX got court approval to proceed with its reorganization plan.
Some seemed unhappy with the FTX plan.

As a seasoned analyst with over two decades of experience in the financial industry, I have witnessed numerous high-profile bankruptcy cases and reorganization plans unfold. The recent approval of FTX’s reorganization plan by the US Bankruptcy Court is indeed a significant milestone, offering hope to victims of the defunct crypto exchange. However, it’s important to note that not everyone seems satisfied with the proposed repayment plan.

The US bankruptcy court has approved the reorganization plan of defunct crypto exchange FTX, ending a complex crypto bankruptcy case that began two years ago.

On October 7th, Judge John T. Dorsey from the US Bankruptcy Court District of Delaware gave his approval to the plan, signifying a crucial step towards disbursing the remaining funds to the victims who had been affected by the now-defunct FTX exchange.

FTX crypto exchange’s repayment plan

The plan sought to reimburse 119% of the claimed value to about 98% of former FTX users. John J. Ray III, the current CEO of FTX, hailed the approval as a ‘milestone’ for victims’ repayments.

Obtaining the Court’s approval for our plan marks an important step forward in our journey towards dispersing funds to our customers and creditors.

Ray added that the cash repayments will also include interest.

Moving forward, we expect to fully repay the principal amount and interest for all non-governmental creditors from this bankruptcy case, which is anticipated to be the largest and most intricate distribution of assets from a bankruptcy estate ever.

According to Bloomberg’s latest report, it’s anticipated that FTX will amass around $14.7 – $16.5 billion. This substantial amount is expected to support their repayment obligations. The bull market’s continuous run has reportedly inflated the value of certain FTX assets such as Solana [SOL], contributing significantly to this feat.

FTX plan’s opponents

However, not everyone seemed happy with FTX’s plan. A week before Judge Dorsey’s approval, one of FTX’s customers objected to the plan and called for in-kind repayment based on crypto assets held by users.

For context, BTC has rallied about 4X since the 2022 winter after the FTX collapse.

In my findings, some affected parties didn’t find the absence of in-kind repayment favorable since they expected compensation equivalent to today’s values for their losses.

According to James Seyffart from Bloomberg, he agreed with the concerns of the victims and pointed out that providing interest wouldn’t compensate for the value if they received payment in kind instead.

It’s beneficial to earn interest on your cash, but that amount pales in comparison to the true value of the customer balances if they were paid directly as goods or services instead.

Instead, Judge Dorsey declined the option of in-kind repayment. Legal advisors knowledgeable about the situation suggested that FTX lacked sufficient cryptocurrency resources for in-kind repayments.

It appears that the closed-down exchange supposedly didn’t possess the cryptocurrencies that customers believed were there.

Despite a court ruling on Monday declaring it valueless, the FTT token, originally associated with the defunct exchange, experienced a significant increase, nearly 50%, following an update.

After FTX hires a company for handling the distribution process and meeting other necessary requirements, customers can expect their repayments to follow. However, opinions were divided as to whether these repayments would positively impact the cryptocurrency market.

2024-10-08 14:16

FTX crypto exchange’s repayment plan

FTX plan’s opponents

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