FTX's Liquidation Plan Gets Court Approval: A New Dawn for Customers

FTX has received court approval for its bankruptcy liquidation plan, allowing the crypto exchange to repay billions to its customers. This decision marks a significant step in the aftermath of FTX's collapse, which was triggered by the misappropriation of customer funds by its founder, Sam Bankman-Fried.

Key Takeaways

• FTX can repay customers using up to $16.5 billion in recovered assets.
• The plan prioritizes customer repayments over government claims.
• 98% of customers with accounts under $50,000 will be repaid within 60 days.
• FTX's bankruptcy case is seen as a model for complex Chapter 11 proceedings.

Court Approval and Plan Details

On Monday, U.S. Bankruptcy Judge John Dorsey approved FTX's wind-down plan during a court hearing in Wilmington, Delaware. The plan is structured around settlements with customers, creditors, and U.S. government agencies, allowing FTX to utilize its assets to repay customers first.

The approval is a significant milestone for FTX, which aims to repay approximately 98% of its customers—those who held $50,000 or less on the exchange—within 60 days of the plan's effective date, which is yet to be determined.

Background of FTX's Collapse

FTX was once a leading player in the cryptocurrency exchange market but faced a catastrophic downfall after revelations that founder Sam Bankman-Fried had misused customer funds to cover risky investments made by his hedge fund, Alameda Research. Bankman-Fried was sentenced to 25 years in prison in March for his actions, which have since sparked widespread scrutiny of the crypto industry.

Financial Recovery and Customer Reactions

FTX has estimated that it will have between $14.7 billion and $16.5 billion available to repay creditors, which is enough to pay customers at least 118% of the value in their accounts as of November 2022, the date of the bankruptcy filing. The company has also been in discussions with the U.S. Department of Justice regarding $1 billion seized during the criminal prosecution of Bankman-Fried.

Despite the positive news, customer reactions have been mixed. Many customers expressed disappointment over missing out on a significant rebound in cryptocurrency prices since the market's low in 2022. Some have voiced objections to the repayment plan, arguing that it does not reflect the current value of their assets.

Challenges in Asset Recovery

Customers who deposited cryptocurrencies like Bitcoin are particularly frustrated, as the price of Bitcoin has surged from around $16,000 in November 2022 to over $63,000 recently. David Adler, an attorney representing objecting creditors, highlighted the difficulty customers face in accepting FTX's claim of a 100% recovery based on outdated prices.

FTX has clarified that it cannot simply return the original crypto assets because they were misappropriated by Bankman-Fried. At the time of its bankruptcy filing, FTX.com held only 0.1% of the Bitcoin that customers believed they had deposited.

Conclusion

The court's approval of FTX's liquidation plan is a crucial step toward restoring some level of financial stability for its customers. While the plan aims to prioritize customer repayments, the complexities of the situation and the emotional toll on affected customers remain significant challenges. As FTX continues to navigate its bankruptcy proceedings, the outcome will be closely watched by the crypto community and financial regulators alike.

Sources

• FTX cleared to repay billions to customers after bankruptcy plan approval, Yahoo Finance Canada.