Interpreting FTX’s preliminary restructuring plan Cash compensation is adopted, excluding FTT holders.

FTX's preliminary restructuring plan adopts cash compensation, excluding FTT holders.

Author: Nancy, LianGuaiNews

There are rumors that the thousandfold Memecoin BALD is controlled by SBF behind the scenes. While this may be a rumor, FTX’s restructuring plan has been confirmed. On August 1st, according to a tweet from the FTX 2.0 Creditors Alliance, FTX has submitted a preliminary restructuring plan and a list of terms. Key information includes that all non-customer claims will be secondary, FTT claims will have a zero amount, and the offshore exchange will be restarted to compensate for the customer shortfall.

It should be noted that FTX’s restructuring plan is still in its early stages. The team will submit a revised plan and disclosure statement in the fourth quarter of 2023 based on feedback from creditors in order to reach a consensus and overcome bankruptcy.

Compensation will be paid in proportion in USD, FTT claims are canceled

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“We are pleased to make a commitment to submit a restructuring plan at a relatively early stage. FTX intends to work with creditors in the coming months and submit a revised plan and disclosure statement in the fourth quarter of 2023,” said FTX CEO John J. Ray III. In fact, according to the U.S. Chapter 11 bankruptcy law, debtors are required to submit two important documents to the court during the bankruptcy reorganization process: a reorganization plan and a disclosure statement.

FTX stated in the restructuring document that considering the extremely large and complex debt claims, legal arguments, and disputes involved in the FTX bankruptcy case, including claims against the debtor and intercompany claims by different debtors, the release of this FTX restructuring plan aims to provide a sincere solution to the global community.

According to the restructuring document, FTX will repay through the sale of various assets related to FTX, mainly including three recovery pools: assets related to FTX.com customers, assets belonging to FTX US customers, and other assets that debtors consider not clearly belonging to the exchange.

At the same time, FTX has also classified creditors, but almost all proposed categories of creditors are listed as “incomplete,” which means that FTX expects creditors to not receive full compensation and will be compensated in USD according to a certain proportion.

The document shows that creditors are classified as priority creditors, secured creditors, FTX offshore trading users (referred to as “Dotcom claimants” in the document), FTX US users, NFT holders, general unsecured creditors, subordinated creditors, and subordinate bondholders, among others. However, administrative claims and some other special priority claims will not be classified and will be paid in full in cash according to the Bankruptcy Act. Among them, seven types of creditors are required to allow voting on this restructuring plan, while FTT holders (whether or not they hold them on the FTX exchange), preferred stock and equity investors, and other related creditors have been canceled and cannot make any claims.

The priority of the creditor’s rights will be determined in accordance with “waterfall priorities”. Each class of creditors will receive a proportionate repayment from the remaining pool of creditor’s rights after the previous class of creditors’ rights have been satisfied. The specific order of payment will be determined through negotiation with stakeholders.

Or establish a new exchange, where users can choose debt-to-equity conversion

In addition, the restructuring document also states that creditors have the option to consolidate their assets to create an offshore exchange, whereby they forgo cash payments in exchange for purchasing shares in the new exchange. “The debtor can decide whether to allow the offshore trading company to repay in the form of equity securities, tokens, or other interests in these stocks, tokens, or equity.”

However, FTX also emphasizes that this plan is still in its early stages and may undergo changes. It will be revised based on feedback from consultants and other stakeholders, with the revised restructuring plan set to be submitted in the fourth quarter of 2023.

Not long ago, John Ray revealed that FTX had “started soliciting interested parties to restart the FTX.com exchange.” According to the Wall Street Journal, informed sources revealed that FTX has been in negotiations with investors regarding potential financing for the restart. However, potential bidders must submit a preliminary letter of intent outlining their participation terms and conditions before this weekend. Blockchain technology company Figure has expressed interest in helping support FTX’s restart, having previously participated in the bidding for Celsius Network, although that ended in failure. Venture capital firm Tribe Capital has also recently stated that it is considering injecting new funds to restart FTX.

Furthermore, the restarted FTX will not be renamed “FTX 2.0” or any other derivative of its original name, but instead will be renamed as a separate entity with a different name. Court documents show that FTX has hired the US law firm Ladas & LianGuairry to provide intellectual property liquidation, registration, and copyright/patent services. Additionally, according to a previous report by Reuters, FTX may restart in 2024.

In the view of John Ray and the restructuring team, the restart of FTX seems to be the best way to ensure that creditors achieve better results compared to other methods. “We expect customers to recover and/or receive equity tokens in FTX 2.0.”

Still owing customers $8.7 billion, FTX liquidation team questioned for incompetence

According to the FTX bankruptcy restructuring team’s second interim report released in June this year, the current deficit is approximately $8.7 billion, with approximately $700 million in liquid assets recovered, but still far from the $12 billion in liabilities. The third report will be released in August. To recover more assets, the FTX liquidation team recently filed a lawsuit against former executives like SBF, seeking to recover the misappropriated $1 billion.

However, as the FTX bankruptcy restructuring progresses, accumulating legal costs are depleting user funds. According to court documents released at the end of June, the liquidation expenses for FTX have already exceeded $200 million, with over $120 million spent on legal and other expenses between February 1 and April 30, 2023, which should have been paid before the launch of Chapter 11 bankruptcy.

Many creditors have questioned the lack of substantial progress by the FTX restructuring team. Not only did the disclosed assets shrink from $7.3 billion several months ago, but the report also repeated known information and had significant inconsistencies in legal expenses. For example, Sullivan & Cromwell law firm used too many inexperienced lawyers to handle the case on FTX. From historical cases, the lawyer fees for FTX cases have accounted for nearly 3% of the recovered assets, surpassing well-known bankruptcy cases such as Enron and Lehman Brothers.

US bankruptcy lawyer Katherine Stadler, who is designated to inspect expenses, called for a reduction in some lawyer fees in June this year. She requested that the chief lawyer Sullivan & Cromwell reduce their $42 million bill by approximately $650,000 to compensate for issues such as excessive personnel, excessive meetings, and unclear document work.

Today, the FTX 2.0 creditors’ alliance also commented that the Unsecured Creditors Committee (UCC) should select the FTX 2.0 team to operate, while demanding the restart and recovery of tokens and interest on their $2.6 billion cash holdings. Based on John Ray and his team’s decision not to invest this fund in short-term government bonds, they are incapable operators. It may be necessary to oppose their upcoming motion to extend exclusive rights so that creditors can submit their own plans.

“As the bankruptcy progresses, customer assets are also deteriorating (decreasing).” As stated by Judge John Dorsey of the US Bankruptcy Court in Delaware, litigation and restructuring come at a high cost for creditors, and it is still unknown whether restarting FTX can truly improve their situation.

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