FTX has filed a proposal that would allow the cryptocurrency exchange to exit bankruptcy.
The proposal, filed in bankruptcy court Saturday (Dec. 16), would distribute billions in cash to creditors and customers once the bulk of FTX’s cryptocurrencies are liquidated.
The proposal says the value of claims by customers and creditors will be determined based on asset prices at the time FTX sought bankruptcy protection last year. Claims will be classed according to the priority given by the estate.
As noted in several published reports Monday (Dec. 18), FTX’s plan will likely be opposed by creditor groups before a judge rules on it. A hearing on the matter will be set next year.
A report Monday (Dec. 18) by The Block notes that the plan could cause creditors to lose millions if approved.
That’s because while bitcoin — the most popular cryptocurrency — was valued at $17,000 at the time of FTX’s collapse, it has been trading at above $40,000 for weeks.
The report also quotes Sunil Kavuri – described as “an outspoken FTX creditor” – who argues the reorganization plan violates FTX’s Terms of Service, which stated that the titles to digital assets belonged with customers and not the exchange.
“The reason SBF was convicted beyond reasonable doubt on all 7 counts was that he stole digital assets that were owned by FTX customers,” Kavuri said, referring to Sam Bankman-Fried, the company’s disgraced founder.
FTX filed for bankruptcy in November of 2022 following the revelation that the company had used customer funds to rescue its sister firm Alameda Research, leading to a massive outflow of funds as investors worried FTX was unable to pay its debts.
News of the company’s bankruptcy plan comes just days after reports that FTX was engaged in a legal battle with the Internal Revenue Service (IRS) over a $24 billion tax claim, which could also impact the outcome of the bankruptcy case.
FTX is reportedly challenging the validity of the IRS claim and is seeking a hearing to determine the actual amount owed. The company contends that a court-supervised estimation process will show that it incurred losses in the three years it was in business, thus invalidating the IRS claim.