FTX creditors object to bankruptcy reorganization plan

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A group of FTX creditors, led by Sunil Kavuri, has filed an objection to FTX’s bankruptcy reorganization plan. They reject it on several grounds, including the assertion that it does not serve the best interests of the creditors.

The creditors argued that being reimbursed with cash would trigger a taxable event, causing the creditors to incur undue costs. Reimbursement of assets in-kind was listed in the objection as a possible remedy.

Moreover, the creditors objected to the release of funds to the debtors—the FTX estate—citing Chapter 11 law, ultimately claiming that the FTX bankruptcy estate was attempting to distribute stolen assets.

The first page of the creditor objection. Source: Sunil Kavuri.

Related: FTX reaches $200M settlement with IRS on tax bill.

These objections follow months of friction between the FTX bankruptcy estate, former customers, and FTX creditors. In 2023, FTX’s Official Committee of Unsecured Creditors (UCC) said it was “extremely disappointed” by the FTX bankruptcy estate’s reorganization plan, claiming it was not contacted for input in the initial draft process.

The UCC also argued that the provisions laid out in the plan would complicate the already bloated bankruptcy process, adding time and cost to the settlement proceedings.

In January 2024, former FTX customers and creditors alike demanded that the now-defunct exchange reimburse them using current market prices, as opposed to the low prices in 2022 when the FTX exchange collapsed during the depths of the crypto bear market.

This disagreement has become a main point of contention in the ongoing bankruptcy proceedings, as the FTX estate and creditors continue to clash about the in-kind proposal and the broader issue of property rights.

Tensions between FTX creditors and the bankruptcy estate flared up again in February 2024 when FTX creditors launched a lawsuit against Sullivan & Cromwell, the legal firm overseeing the FTX bankruptcy. They allege that the firm was complicit in the FTX fraud and was aware of the dire situation at the former exchange before the collapse.

An independent probe later found Sullivan & Cromwell innocent of any wrongdoing and maintained that the law firm was unaware of the fraudulent activity at FTX before its collapse. 

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