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FTX Bankruptcy Update: Proposal Outlines Creditor Payback Plan

In a significant development related to the FTX bankruptcy, the crypto exchange has put forward a proposal to return up to 90% of creditor holdings. These funds were in custody when FTX faced a crisis in November of the previous year.

The debtors overseeing the bankruptcy process have outlined this proposal, which is set to be formally filed with a U.S. Bankruptcy Court for review by December 16, 2023. Is an FTX withdrawal finally on the horizon?

Background and Challenges
FTX, once a major player in the cryptocurrency world, faced a challenging period when its financial stability was called into question, ultimately leading to its collapse. CoinDesk’s revelations about FTX’s balance sheet played a role in its downfall.

Notably, FTX’s founder, Sam Bankman-Fried, is currently facing criminal charges, and several team members, co-workers, and associates, including the CEO of Alameda Research, are either convicted or awaiting trial.

Creditor Payback Proposal
The proposed plan suggests a structured approach to returning creditor holdings, dividing missing customer assets into three pools based on the circumstances at the outset of Chapter 11 cases:

  1. Customer Pool: Assets held for customers.
  2. FTX.US Customer Pool: Assets set aside for FTX’s U.S. customers.
  3. General Pool: A pool of other assets.

Customers with a preference settlement amount of less than $250,000 can accept the settlement without any reduction in claim or payment. The preference settlement is calculated as 15% of customer withdrawals from the exchange made nine days before its collapse.

Creditors are expected to receive a “Shortfall Claim” against the general pool, corresponding to the estimated value of assets missing at their respective exchanges. This shortfall claim is estimated to be approximately $8.9 billion for and $166 million for FTX.US.

Factors Affecting Creditor Recovery
Creditors need to be aware of potential factors that could influence their actual recoveries, including taxes, government claims, token price fluctuations, and other variables that could impact the final distribution of assets.

The proposal allows for the exclusion of certain parties, such as insiders, affiliates, or customers who might have been aware of the commingling and misuse of customer deposits and corporate funds. Individuals who changed their KYC (Know Your Customer) information to facilitate withdrawals during the halt may also be excluded. In such cases, payouts may not reflect the fair value of the FTX debtors’ claims.

Is FTX Withdrawal Really Going to be Possible?
The FTX creditor payback proposal is a significant step in the bankruptcy process, potentially returning up to 90% of creditor holdings to those affected by FTX’s collapse. The plan addresses the complexity of the situation by categorizing assets into distinct pools and providing options for creditors based on their claim amounts.

However, the final outcomes may be influenced by various external factors. This development follows FTX’s tumultuous history, including ongoing legal proceedings against its founder, Sam Bankman-Fried, and revelations of financial mismanagement.

Creditors should carefully consider their options and the potential implications of this proposal as they await the U.S. Bankruptcy Court’s decision. If you need help understanding your recovery options, book a free consultation with our chargeback experts today.

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