FTX Reorganization Plan Approved, Creditors May Receive Compensation Before Year-End

On October 7, 2024, FTX Trading Ltd. (operating as FTX.com) and its affiliate debtors announced that the U.S. Bankruptcy Court for the District of Delaware confirmed their reorganization plan, less than two years after their historic bankruptcy filing.

Asset Value

In filings on May 8, FTX reported that since filing for bankruptcy, they have recovered and liquidated assets valued between $14.5 billion and $16.3 billion. Under the reorganization plan, approximately 98% of creditors will receive around 119% of their approved claims within 60 days after the plan becomes effective, subject to KYC requirements. The distribution includes assets managed by FTXs Chapter 11 debtors and various partners like FTX Digital Markets, Ltd. (Bahamas) and FTX Australia.

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Payment Timeline

With the plans approval, FTX aims to compensate 98% of users within 60 days post-activation of the plan. While the plan is approved, the effective date is not yet determined. FTX creditor Mr. Purple has suggested two timelines: an activation on October 31, potentially allowing payments before year-end, or delays extending payments to early 2025 due to the reserve fund motion expected in November or December.

Impact on FTT

Following the plans approval, FTT surged past $3.4, reaching a peak of $3.43 before stabilizing at $2.49.

Broader Impact

The reorganization plan stipulates that 98% of creditors will be compensated in cash at 118% of their claim value based on the November 2022 bankruptcy filing. Remaining creditors are set to receive 100% of their claims, along with additional time-value compensation worth billions. About 94.48% of creditors, representing claims worth $6.83 billion, supported the plan.

Some creditors, including those led by Sunil Kavuri, opposed the plan, preferring direct compensation in cryptocurrency rather than cash-based on 2022 values. However, the FTX liquidation team and the presiding judge opposed this approach.

As the compensation progresses, some funds are expected to re-enter the crypto market, potentially supporting market trends.