FTX, the cryptocurrency exchange that filed for bankruptcy, has recently unveiled its reorganization plan. According to the plan, the company intends to repay 98% of its creditors with at least 118% of their allowed claims. This announcement came as a relief to many who had their investments tied up in the exchange.
In addition to this, other creditors are set to receive full repayment along with billions more in compensation. This additional compensation is intended to account for the time value of their investments, a move that further underscores FTX’s commitment to making things right for its creditors.
John J. Ray III, the CEO of FTX, expressed his satisfaction with the proposed plan. He stated, “We are pleased to be in a position to propose a chapter 11 plan that contemplates the return of 100% of bankruptcy claim amounts plus interest for non-governmental creditors.”
FTX’s Centralized Distribution and Compensation
The reorganization plan proposes a “centralized distribution” for FTX customers and creditors who were affected by the company’s collapse in 2022. This means that all customers and creditors, irrespective of where their assets were located, will be treated equally.
FTX estimates that the total value of cash available for distribution will be between $14.5 billion and $16.3 billion. However, this plan is still subject to finalization and approval by the U.S. Bankruptcy Court.
As per the plan, creditors with allowed claims below $50,000 will be eligible for the 118% compensation upon court approval. FTX has scheduled the repayment to occur within 60 days after the plan’s effective date.
Asset Monetization and the Downfall of FTX
FTX has managed to monetize an “extraordinarily diverse collection” of assets to fund the repayments. Most of these assets were from investments held by Alameda and FTX Venture businesses, or litigation claims. However, as FTX held minimal portions of bitcoin and ether at the time of the collapse, debtors did not benefit from their recent surge in value.
The downfall of FTX was primarily due to illegitimate operations by its executives, which led to a liquidity crisis and ultimately, its demise. Sam Bankman-Fried, the former CEO of FTX, was found guilty last November on all seven criminal counts of defrauding FTX customers and investors. In March, he received a prison sentence of nearly 25 years, marking the end of a tumultuous chapter in the history of cryptocurrency exchanges.
This reorganization plan is a significant step towards restoring faith in the exchange and providing much-needed relief to its creditors. However, it also serves as a stark reminder of the risks involved in the rapidly evolving world of cryptocurrency.
