FTX, the once-prominent cryptocurrency exchange that declared bankruptcy in November 2022, has proposed a comprehensive repayment plan that might restore funds to the overwhelming majority of its creditors, according to recent court documents.
The company’s financial collapse, which rattled the crypto industry, now sees a potential resolution that could notably return more than the lost amounts to most affected parties.
Detailed Financial Overview
According to the details disclosed in the latest reorganization plan submitted to the bankruptcy court, FTX has estimated its total liabilities to creditors at approximately $11.2 billion. Remarkably, the assets available for distribution are valued between $14.5 billion and $16.3 billion.
This surplus has been primarily amassed through the liquidation of various holdings, including significant investments and venture capital assets, which the company managed to secure even amidst financial turmoil.
How Will Creditors Be Compensated?
Specifically, the plan outlines that creditors with claims of $50,000 or less will receive around 118% of their claim value, which encompasses about 98% of all creditors involved with the exchange. This higher repayment rate includes a consideration for the interest, acknowledging the time value of money since the claims were lodged.
The promise of such repayments follows extensive asset liquidation efforts by FTX, including：
- A notable divestiture from the artificial intelligence company Anthropic, where FTX sold most of its stake earlier this year, generating nearly $900 million.
- Recovery of funds through the sale of venture investments held by FTX.
- Other investments owned by Alameda, a crypto hedge fund affiliated with FTX’s founder, Sam Bankman-Fried.
Bankman-Fried, whose management of FTX has been widely criticized for a lack of corporate governance and financial transparency, was convicted in early November on charges including wire fraud and conspiracy to commit money laundering, culminating in a 25-year prison sentence.
Governmental and Legal Settlements
The reorganization strategy not only aims to compensate the individual creditors but also addresses the settlements with significant governmental creditors like the Internal Revenue Service and the Department of Justice, offering them a nine percent interest rate on their payouts. This structured repayment plan is part of an effort to resolve claims without entering into prolonged and costly litigation.
Despite the structured repayment plans, the scenario is not entirely favorable for the creditors, as they missed out on the potential gains from the cryptocurrency market boom. Since FTX’s bankruptcy filing, the value of Bitcoin, for instance, has increased by about 270%. This significant market appreciation underscores the missed financial opportunities due to the assets being locked up during the bankruptcy proceedings.
John Ray III, who replaced Bankman-Fried as CEO, noted that the absence of robust financial controls under the previous administration was unprecedented in his four decades of restructuring experience. He stated, “We are pleased to be in a position to propose a Chapter 11 plan that contemplates the return of 100% of bankruptcy claim amounts plus interest for non-governmental creditors.”
This proposed plan, awaiting approval from the bankruptcy court, could potentially dispense between $14.5 billion and $16.3 billion in cash to settle the creditor claims, marking a significant step towards resolving one of the most dramatic collapses in the cryptocurrency industry.
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Featured Image courtesy of DADO RUVIC/REUTERS