FTX Payment Plan Approved by Delaware Judge

• A US bankruptcy judge has approved FTX’s plan to repay its customers nearly two years after the exchange’s collapse
• The plan will return up to 119% of customer claims, using over $16 billion in recovered assets
• Some creditors have raised concerns, as the payout will be in cash rather than crypto, potentially reducing the value of their original holdings

A US federal judge has given the green light to a reorganization plan aimed at repaying FTX creditors, nearly two years after the exchange collapsed. Judge John Dorsey of the US Bankruptcy Court for the District of Delaware confirmed the plan yesterday, allowing the defunct cryptocurrency exchange to distribute between $14.7 billion and $16.5 billion to its users. Creditors across more than 200 jurisdictions are now set to receive payouts, some as early as late 2024, with the ruling seen as a critical milestone in winding down one of the largest crypto bankruptcies in history.

Dollarization Reduces Actual Payouts

FTX, once a dominant player in the cryptocurrency space, imploded in November 2022 following revelations of extensive fraud and financial mismanagement. The fallout led to the disappearance of billions in customer funds, sparking criminal investigations and lawsuits.

Since then, FTX’s restructuring team, led by CEO John J. Ray IIIhas been working to recover as much value as possible for creditors. “The Court’s confirmation of our plan is a significant milestone on our pathway to distributing cash to customers and creditors,” Ray stated. The CEO praised the efforts to secure such a high recovery rate, positioning FTX’s estate as one of the largest asset distributions ever seen in a bankruptcy case​

Despite the high recovery percentages, the decision has not been universally celebrated, with the process of ‘dollarization’ seeing creditors paid out in the dollar value of their holdings at the time of the collapse; when FTX collapsed, Bitcoin was trading at around $16,000 but has since surpassed $60,000. This has led to some, such as bankruptcy expert Professor Yesha Yadav, saying that calling the return over 100 per cent is “just wrong,” given that many creditors will not feel they are getting a full recovery when the current value of their assets is considered​.

Judge Ignores Creditor Complaints

Some FTX customers filed formal objections to the plan before it was confirmed, with their concerns including the tax implications of receiving cash payments and the immunity granted to those administering the bankruptcy. Still, Judge Dorsey dismissed these objections during the confirmation hearing, ensuring that the plan could move forward without major changes.

Although there may still be logistical hurdles in distributing the funds, this ruling signals the end of FTX’s tumultuous bankruptcy saga. With repayments now slated to begin, it also marks a turning point for those affected by the collapse of the crypto exchange, although some creditors might continue to seek legal avenues to challenge aspects of the settlement.