According to the interim liquidator in charge of FTX Digital Markets’ bankruptcy proceedings, FTX was not permitted to declare bankruptcy in the United States without his consent.
FTX Trading and 134 additional affiliates filed for Chapter 11 bankruptcy on November 14 in a Delaware court, but provisional liquidator Brian Simms, who was appointed by the court to oversee the bankruptcy proceedings of FTX Digital Markets in The Bahamas, has questioned the legality of that filing.
Simms filed for Chapter 15 bankruptcy on November 15 in the Southern District of New York of the United States Bankruptcy Court, which is utilized when a foreign representative of the debtor requests recognition in the United States for an ongoing foreign insolvency case.
As the provisional liquidator, Simms is the only one “allowed to conduct any act, including, but not limited to, filing the Delaware Petition,” according to the filing, which also states that FTX Digital is not a party to the Delaware Petition. Simms continues:
“The Provisional Liquidation Order divests FTX Digital’s directors’ of the ability to act, or exercise any functions, for or on behalf of FTX Digital unless expressly instructed to so by me in writing.”
The Bahamas-based attorney claims he rejects the “validity of any putative attempt to place FTX Affiliates in bankruptcy” since he “did not consent or approve, in writing or otherwise.”
He further notes, “The entire FTX Brand was ultimately operated from a single location: The Bahamas. All core management personnel likewise were located in The Bahamas.”
Sam Bankman-Fried (SBF) established FTX’s digital asset exchange in May 2019 in Hong Kong, but after China banned cryptocurrencies, SB moved the business to Nassau, the capital of the Bahamas, in September 2021.
Simms has urged the U.S. courts to acknowledge the legal procedures taking place in The Bahamas but has not asked the court to dismiss the U.S. bankruptcy proceedings, claiming “no temporary relief seeking the injunction or dismissal of Chapter 11 is presently sought.”
However, he adds that “it is feasible that the provisional relief requested will have an impact on the FTX Affiliates that filed Chapter 11” in his filing.
Businesses can use Chapter 11 to restructure their obligations and pay creditors while carrying on with their activities.
Provisional liquidators were appointed after FTX’s registration status was suspended and its local subsidiary’s assets were frozen by the Bahamas’ securities commission on November 10.
