The bankrupt cryptocurrency exchange FTX has unveiled a promising reorganization plan under which an impressive 98% of its creditors are expected to recover 118% of their claims in cash. This plan, however, awaits approval from a Delaware bankruptcy court.
Generous Compensation for Creditors
In a bold move, FTX proposes to compensate its creditors significantly above earlier predictions. Originally expected to repay 90% of customer funds, the exchange now plans to distribute cash equal to 118% of the claims within 60 days of court approval. Additionally, non-governmental creditors are set to receive 100% of their claims plus up to 9% interest, acknowledging the time value of their investments.
Strategic Asset Liquidation
FTX’s ability to offer such high repayments stems from its successful liquidation of assets, including significant holdings like an 8% stake in AI startup Anthropic. This piecemeal sale to institutional investors generated $884 million in March alone, contributing to the estimated $14.5 to $16.3 billion in cash expected to be available for distribution.
Legal and Regulatory Settlements
The new plan also addresses settlements with various regulators and government agencies. The IRS, for example, has agreed to a resolution involving a $200 million cash payment and a further $685 million in subordinated claims. This arrangement prioritizes the full payment of FTX users and investors with interest before any government claims are settled.
A court hearing scheduled for June will further discuss the proposed plan. FTX also anticipates creating a special fund for “supplemental restitution” to certain customers and creditors, although specifics remain under discussion.
The Context of Sam Bankman-Fried
The backdrop to this recovery effort is the conviction of FTX’s former CEO, Sam Bankman-Fried, for fraud. His legal team’s argument that the exchange’s ability to fully repay customers negates the harm caused was not sufficient to prevent a 25-year prison sentence.
FTX’s proposed plan not only signifies a notable recovery from bankruptcy but also impacts the broader crypto market. The company’s native token, FTT, saw a significant uptick, rising 33% following the announcement.
