Creditors of the bankrupt cryptocurrency exchange FTX are now faced with a choice – whether to receive their repayments in cash or in cryptocurrency. The United States Bankruptcy Court for the District of Delaware has approved the necessary packages and ballots for customers to indicate their preference. The deadline for voting is August 16, with a decision expected from Judge John Dorsey in early October.
FTX’s proposed reorganization plan aims to repay creditors the U.S. dollar value of their crypto assets at the time of the exchange’s collapse. The plan offers a 118% return for 98% of creditors with claims under $50,000, while non-governmental creditors will receive 100% of their claims plus additional interest payments of up to 9% from the time of the collapse.
Despite creditors losing around $11 billion when FTX went bankrupt in 2022, the estate now has over $16 billion from consolidating funds and selling assets. This surplus has raised questions about whether creditors should receive the cash value of their holdings at the time of the collapse, especially considering the significant growth in the crypto market since then.
Bitcoin’s price has surged from $16,000 at the time of FTX’s collapse to over $61,000 currently, a 281% increase. The total crypto market cap has also more than doubled, from $1 trillion to $2.27 trillion, indicating substantial growth in the market.
FTX’s lawyers argue that the proposed cash repayment plan aligns with bankruptcy laws, which require claims to be repaid based on their value at the time of filing for Chapter 11. They also claim that implementing this plan would protect creditors from capital gain taxes.
However, some creditors, led by activist Sunil Kavuri, have objected to the proposed plan. They argue that it does not meet certain requirements of the Bankruptcy Code, including issues related to property rights, debtors liquidation analysis, and the best interest test.
The decision on whether creditors will receive cash or cryptocurrency repayments from FTX remains pending until the voting deadline on August 16. Judge John Dorsey will ultimately decide on the matter in early October, taking into account the arguments presented by both FTX and the objecting creditors.