FTX restructuring plan plans to allocate 230 million magnesium to shareholders, causing dissatisfaction among creditors

According to The Block, the restructuring team of the bankrupt cryptocurrency exchange FTX (led by Sullivan&Cromwell's legal team) will allocate up to $230 million in funds from the government confiscation process for preferred shareholders.

Shareholder specific fund

This agreement was disclosed in recent documents, catching creditors off guard because in bankruptcy proceedings, creditors usually receive repayment priority over shareholders, and before the August 16th voting deadline, creditors overwhelmingly passed the plan without knowing the existence of this clause. Sunil Kavuri, the representative of FTX's largest creditor group, stated:

Ordinary creditors did not participate at all, and FTX clients who followed me have expressed that they feel they have been deceived and plundered by the restructuring team again

According to the agreement, the FTX restructuring team will allocate 18% of the proceeds from government confiscation actions to a dedicated fund, providing "exclusive benefits" to certain shareholders, with a total amount of up to 230 million US dollars. Although the agreement was officially signed on August 28th, nearly two weeks later than the deadline for creditors to vote, according to the terms of the agreement, it was not disclosed until September 27th. And September 27th happened to be the 30th day that the estate was allowed to submit a revised plan, and it was also the last day.

Government confiscation of assets

The FTX restructuring team estimated the benefits of the "government confiscation action" in the June document: approximately $626 million came from Robinhood stocks purchased by Emergent entities; Approximately $379 million in fiat and digital assets, which are "funds seized from certain accounts of third-party cryptocurrency exchanges" (as of June); Approximately $150 million in cash, 'from accounts registered under FTX DM'; And two private planes purchased using approximately $35 million worth of legacy assets.

The total value of these assets, as of June, is approximately $1.19 billion, of which 18% is equivalent to $214.2 million, which is consistent with the maximum amount of $230 million stipulated in the agreement. The plan also stipulates that shareholders can receive up to $250000 in legal fees from the dedicated fund.

Current restructuring plan

According to FTX's current bankruptcy restructuring plan, 98% of creditors will receive at least 118% of their debt value (calculated at market prices at the time of bankruptcy). However, Sunil Kavuri believes that since bankruptcy claims are evaluated based on the value of the relevant cryptocurrency at the time of bankruptcy, creditors can actually only retrieve "about 10% to 25% of the cryptocurrency".

For example, when FTX went bankrupt, the price of Bitcoin was around $16000, and then the price rose to nearly $66000. According to the plan, creditors who lost 1 BTC due to bankruptcy will only receive $16000, approximately 24% of the original asset value.

The confirmation hearing for the FTX restructuring plan is currently scheduled for October 7th at 10am Eastern Time, when Judge John Dorsey of the Delaware Bankruptcy Court will decide whether to approve the plan. According to the law, the FTX estate must report the complete results of the creditors' vote before September 30th (7 days before the hearing), which is also the deadline for the restructuring team to submit a response to objections to the plan in support of its confirmation.