FTX Trading files amended Chapter 11 plan and disclosure statement

By Sarah Lizee

Olympia, Wash., Dec. 18 – FTX Trading Ltd. filed an amended Chapter 11 plan and disclosure statement on Saturday with the U.S. Bankruptcy Court for the District of Delaware.

A notable new detail in the plan is that it proposes to value the assets of FTX as of the petition date, which was Nov. 11, 2022.

Creditor recovery estimates were not given in the documents.

The plan is based on a settlement of customer property disputes reached in October. If approved by the court, the customer shortfall settlement would resolve the customer property litigation filed against the FTX debtors and facilitate confirmation of the amended plan in the second quarter of 2024.

The customer property litigation asserted that customers of FTX.com and FTX US had property interests in some assets, rather than an unsecured claim ranking equally with general creditors.

The customer shortfall settlement resolves the dispute by providing customers a claim against the FTX debtors that, although unsecured, has an equitable priority to certain property segregated at or taken from the exchanges, FTX said.

The settlement was reached after months of extensive negotiations among the FTX debtors, the executive committee of the ad hoc committee of non-U.S. customers (representing customers holding roughly $1 billion in FTX.com customer claims), the official committee of unsecured creditors, and putative class representatives.

All of these parties have entered into a settlement and plan support agreement.

Through the amended plan, the FTX debtors would divide substantially all of their assets into three pools based on circumstances at the start of the Chapter 11 cases: assets segregated for the benefit of FTX.com customers; assets segregated for the benefit of FTX US customers; and a general pool of other assets.

In addition to a claim against assets at their respective exchange, customers of FTX.com and FTX US would benefit from a shortfall claim against the general pool corresponding to the estimated value of assets missing at their exchange.

The shortfall claim is estimated to be about $8.9 billion for FTX.com and $166 million for FTX US.

As a way to balance the customer groups’ assertion of a property right arising from the misappropriation of exchange property and the difficulties of asset tracing in FTX's circumstances, a negotiated portion of the shortfall claim would be deemed to benefit from an equitable priority against the general pool, so that 66% of the general pool would be applied exclusively to pay shortfall claims, and 34% of the general pool would be applied to pay remaining shortfall claims and other claims ratably.

FTX said that, taking into account both the priority and the non-priority portions of the shortfall claim, the FTX debtors estimate that customers of FTX.com and FTX US would receive, collectively, over 90% of distributable value worldwide if the amended plan is approved by the bankruptcy court by the end of the second quarter of 2024.

The FTX debtors currently anticipate that customers of both exchanges will not be paid in full, with greater percentage losses by customers of FTX.com.

They also anticipate that non-customers with claims against the general pool will incur greater percentage losses than customers of either exchange, although the extent of these differences cannot be predicted with certainty at this time, the company said.

FTX noted that future recoveries for customers and non-customers will depend on many variables.

Preference settlement offer

The customer shortfall settlement also contemplates an opportunity for eligible customers to resolve the current uncertainty about any preference exposure applicable to their claims, FTX said.

Under the terms of the agreement, the FTX debtors have agreed to offer each eligible customers approving the amended plan the opportunity to resolve exchange preference liability by reducing their claim (or paying cash) in an amount specified on the amended plan ballot.

The preference settlement amount for each eligible customers would be equal to 15% of the amount by which the customer's withdrawals during the nine days prior to the Chapter 11 cases exceeded the customer's deposits during the same period, as more fully explained in the term sheet attached to the support agreement.

The FTX debtors may exclude from the settlement any insiders, affiliates, customers against whom the FTX debtors have other claims, customers who may have had knowledge of the commingling and misuse of customer deposits and corporate funds, customers who changed their KYC information to facilitate withdrawals or received manual permission from the debtors to facilitate withdrawals when withdrawals were otherwise halted, and customers for whom the FTX debtors determine the settlement may not reflect the fair value of the FTX debtors' claims.

Eligible customers that have a preference settlement amount of less than $250,000 during the nine-day period would be able to accept the settlement without any reduction of claim or payment.

FTX has headquarters in the Bahamas and filed Chapter 11 bankruptcy on Nov. 11, 2022 under case number 22-11068.

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