FTX Debtors recently submitted an amended Chapter 11 reorganization plan, which has the potential to lead to substantial losses for the creditors of the now-defunct cryptocurrency exchange. The plan proposes valuing the creditors’ claims based on the cryptocurrency prices on November 11, 2022, the day FTX filed for bankruptcy. Unfortunately for the creditors, this date coincided with a significant downturn in the crypto market.
At the time of FTX’s bankruptcy filing, it triggered a bear market that persisted for months into 2023. Consequently, the cryptocurrency prices on November 11, 2022 were considerably lower than at the time of writing. This divergence in crypto prices means that the creditors will face substantial losses when compared to the current market value of their assets.
For example, on November 11, 2022, Bitcoin (BTC) was valued slightly above $17,500 according to CryptoSlate data. However, over the past year, the price of Bitcoin has more than doubled and is currently sitting at $41,649.57. This implies that FTX creditors will experience a loss of over $24,000 per BTC. Similarly, Ethereum’s (ETH) price increased from around $1,284 on November 11 to $2,214 at the time of writing, resulting in a loss of nearly $1,000 per ETH for the creditors.
One FTX creditor, Sunil Kavuri, raised concerns regarding the revised reorganization plan’s disregard for FTX’s Terms of Service. These terms explicitly state that digital assets are the property of users and not FTX Trading. Despite this, the plan fails to account for this critical aspect and seemingly undermines the rights of the creditors.
It is essential to consider not only the financial implications of the bankruptcy plan but also the legal ramifications. By not accounting for FTX’s Terms of Service, the plan may potentially violate the rights of the creditors and open the door for legal disputes.
Voting on the Plan
Before the reorganization plan is finalized, certain classes of creditors will have the opportunity to vote on its adoption. This step allows the affected parties to voice their concerns and potentially influence the outcome of the plan.
The revised Chapter 11 reorganization plan proposed by FTX Debtors could result in significant losses for the exchange’s creditors. Valuing the creditors’ claims based on the cryptocurrency prices from November 11, 2022, fails to reflect the substantial growth in the crypto market since then. Furthermore, disregarding FTX’s own Terms of Service and the property rights of the creditors raises legal concerns. The voting process will provide an opportunity for the impacted parties to express their views and potentially impact the final outcome. Ultimately, it remains to be seen how the court and the creditors will navigate through this complex situation and determine a fair resolution.
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