FTX Debtors recently filed an amended Chapter 11 reorganization plan, which has raised concerns among the creditors of the defunct crypto exchange. The plan proposes valuing the claims of the creditors based on crypto prices from November 11, 2022, the day FTX filed for bankruptcy. However, this approach could lead to significant losses for the creditors due to the decline in cryptocurrency prices since that date.
Leading up to the collapse of FTX, the crypto market experienced a downward spiral. The exchange’s bankruptcy filing not only marked its own failure but also triggered a bear market that lasted for several months into 2023. Therefore, the cryptocurrency prices on November 11, 2022, were considerably lower compared to the current market prices.
The disparity in crypto prices means that FTX creditors will suffer substantial losses when compared to the value of their assets at the time of the bankruptcy filing. For example, Bitcoin was valued at just above $17,500 on November 11, 2022, but has more than doubled in value since then, currently standing at $41,649.57. This would result in a loss of over $24,000 per BTC for the creditors. Similarly, Ethereum’s price has increased from around $1,284 to $2,214, equating to a loss of nearly $1,000 per ETH for the defunct exchange’s creditors.
Non-compliance with FTX’s Terms of Service
One of the concerns raised by FTX creditor Sunil Kavuri is that the new reorganization plan ignores FTX’s Terms of Service, which clearly states that digital assets belong to users and not FTX Trading. This omission further exacerbates the dissatisfaction among creditors who feel that their rights are being disregarded.
Certain classes of creditors will have an opportunity to vote on the reorganization plan before it is finalized. This process allows them to express their views and potentially influence the final outcome. It remains to be seen whether these concerns will be addressed and how the creditors’ votes will impact the direction of the plan.
FTX Debtors’ amended Chapter 11 reorganization plan presents a challenging situation for the creditors of the defunct crypto exchange. Valuing their claims based on cryptocurrency prices from November 11, 2022, means that they will incur significant losses compared to the current market prices. This discrepancy raises concerns among the creditors, particularly regarding the plan’s lack of compliance with FTX’s own Terms of Service. As the voting process commences, the outcome will determine the fate of the reorganization plan and the extent to which the creditors’ voices are heard.