Creditors of the bankrupt cryptocurrency exchange FTX have filed an objection to the platform’s proposed reorganization plan, citing its failure to meet certain requirements of the Bankruptcy Code.
According to a tweet by FTX creditor activist Sunil Kavuri, the objection argues that the reorganization plan ignores property rights issues, does not satisfy the best interest test, and contains inconsistent debtors liquidation analysis.
Creditors Object to FTX Bankruptcy Plan
FTX creditors Ahmed Abd El-Razek, Pat Rabbitte, Noia Capital, and Kavuri submitted the objection in the U.S. Bankruptcy Court for the District of Delaware on June 6, a month after the crypto exchange filed the reorganization and proposed a way to repay customers.
On May 7, FTX revealed that it had gotten more money than was needed to make repayments and conclude its bankruptcy process. Although customers and other affected parties lost roughly $11 billion when the exchange collapsed in 2022, the bankruptcy estate said it had amassed more than $16 billion from selling assets and consolidating funds from various entities.
Under the proposed reorganization plan, FTX would pay 98% of creditors with claims less than $50,000, roughly 118% of their allowed claims, within 60 days after the plan is approved. On the other hand, non-governmental creditors would receive 100% of their claims and potential additional 9% interest payments.
While the crypto community responded positively to the proposed plan, Kavuri and some other creditors expressed their disapproval of its terms.
In Kind Distributions
The objectors are pushing for FTX to make the repayment distributions in kind to avoid incurring taxes on creditors.
“It is painfully apparent that the Debtors’ proposed Plan will inflict additional hardships on customers through forced taxation that could be avoided by making an ‘in kind’ distribution…If instead of providing cash on account of the claim, the Debtors would distribute ‘in kind’ to the customer, the customer may be able to avoid a reporting event for tax purposes,” they stated.
Kavuri and the other creditors insist that the FTX bankruptcy estate can enter an agreement with another crypto exchange to make the distributions in kind, as doing so on their own may be difficult.
In addition, the trio rejected the proposed plan because it is “unconfirmable as a matter of law,” includes releases not in the estate’s interest, and contains unambiguous terms of service and statements by the debtors.
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