FTX’s Proposed Settlement Offers $8.9 Billion Payout to Creditors
A proposed settlement in the Chapter 11 cases of FTX and its affiliated debtors could result in a payout of $8.9 billion for FTX.com creditors and $166 million for FTX.US creditors. Known as the Customer Shortfall Settlement, this agreement has been reached after extensive negotiations and is awaiting approval from the Bankruptcy Court.
Details of FTX’s Customer Shortfall Settlement
The FTX debtors have announced an upcoming Customer Shortfall Settlement that will be incorporated into a revised Plan of Reorganization. This settlement aims to settle customer property disputes against the FTX debtors and expedite the approval process for the revised plan.
If approved, a special “Shortfall Claim” will be created to benefit customers, allowing eligible customers to settle their customer preference exposure at an agreed amount.
Resolving Customer Property Disputes
The proposed settlement aims to resolve the dispute over whether FTX.com and FTX.US customers had property interests in specific assets or were unsecured claimants. It grants customers a claim against the FTX debtors, albeit unsecured, with equitable priority for certain segregated assets.
John J. Ray III, CEO and Chief Restructuring Officer of the FTX debtors, expressed optimism about the proposed settlement, calling it a “major milestone” in their case. He commended the collaborative efforts of both debtors and creditors in navigating a challenging financial situation.
The Amended Plan for Asset Division and Settlement
The amended plan involves dividing assets into three pools: one for FTX.com customers, one for U.S. customers, and a general asset pool. Only the first two groups are eligible for shortfall claims. It is expected that customers of both exchanges may not receive full payments, with FTX.com customers likely experiencing higher losses.
The plan also includes a Preference Settlement Offer, allowing eligible customers to resolve preference exposure related to their claims. Customers who made withdrawals exceeding deposits during a specific period will face a 15% reduction.
Some customers, such as insiders and affiliates with knowledge of misappropriation, may be exempted from this settlement. Claims below $250,000 within the specified period will also remain unaffected. The extent of losses will depend on factors like asset recovery efforts, litigation outcomes, and unresolved issues.
Hot Take: A Promising Step Forward for FTX Customers
The proposed settlement in the Chapter 11 cases of FTX and its affiliated debtors could bring significant relief to creditors. If approved by the Bankruptcy Court, it would create a special “Shortfall Claim” that benefits customers and resolves customer property disputes.
This settlement marks a major milestone in the case and reflects the collaborative efforts of debtors and creditors in navigating a challenging financial situation. While customers may not receive full payments, this agreement offers an opportunity to settle customer preference exposure and begin the process of rebuilding.
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