Sunil Kavuri, representing FTX’s largest creditor group, echoed these concerns and suggested in-kind repayments to avoid high cash taxes.
The United States Trustee and a group of creditors are placing legal obstacles in the way of the restructuring plan of FTX, the cryptocurrency exchange that has gone bankrupt. This raises questions about the feasibility of putting the plan into action.
We made this decision based on a report that showed the creditors had approved the plan, with over 95% voting in favor of it. We took this report into consideration when making this decision.
The United States Trustee, Andrew R. Vara, submitted a complaint against FTX’s updated reorganization plan, raising eleven concerns.
Among the most significant issues that Vara is concerned about are the excessively generous legal protection that is provided to individuals who are involved in the bankruptcy process, the unfair treatment of the smaller creditors, and the unwillingness to disallow charges that were incurred as a result of a data breach that an estate service provider experienced.
The trustee further asserted that the estate’s specialists have requested millions of dollars in order to compensate them for attending to the breach, which Vara has emphasized should not be the estate’s responsibility.
Andrew R. Vara expressed his dissatisfaction with the distribution of the claims, asserting that the smaller creditors would receive a smaller payment than the larger creditors. It is his assertion that the estate has sufficient funds to compensate all of the creditors in a manner that is equally proportional and does not depend on the amount that is owed to them.
Creditors Seek In-Kind Reimbursements
He also expressed concerns about the ‘umbrella’ element of the plan, which extends immunity to more individuals and businesses than the relevant statutes allow. Sunil Kavuri, representing the largest FTX creditor group, along with two other individuals representing retail consumers, submitted a separate complaint.
Kavuri raised a similar issue to the trustee’s with regard to the exculpatory elements of the plan, stating that they violate the controlling case law. Furthermore, Kavuri highlighted the concept of “in-kind repayments,” arguing that creditors should have the ability to receive their claims in the form of misplaced bitcoin.
He suggested that this could help creditors avoid the heavy taxes on cash receipts associated with tax payment. The filing against the defunct cryptocurrency exchange also references the bankruptcy case of BlockFi, where Coinbase assisted some of the creditors in obtaining in-kind distributions.
FTX Strong Creditor Support
Prior to the filing by the United States Trustee, FTX had initially indicated a positive mood towards its reorganization plan, despite the fact that there were legal concerns. 95% of the creditors who voted on the proposal, equivalent to 99% based on the claim value at the time, endorsed it, according to the corporation.
John J. Ray III, the company’s Chief Executive Officer, expressed his enthusiasm for this support, pointing out that the non-governmental creditors will be able to receive full compensation for their claim amounts, along with interest, if the plan that was offered is implemented.
Ray expressed optimism that the company would implement the plan according to the schedule, distribute the money to the creditors, and successfully complete the Chapter 11 procedure.
On the other hand, October 27, 2024, is the date of the confirmation hearing for the FTX restructuring plan. Before the hearing, the defunct cryptocurrency exchange intends to present the final voting results to the United States Bankruptcy Court for the District of Delaware.
