The debtors of the cryptocurrency exchange FTX, have successfully reached an agreement with key stakeholders that could lead to a massive $9 billion shortfall claim settlement for FTX clients. The deal was struck after extensive negotiations involving the Ad Hoc Committee of Non-US Customers, the Unsecured Creditors Committee, and class action plaintiffs.
If approved by the bankruptcy court, this settlement is poised to be a positive development for FTX clients.
Major Milestone in FTX’s Chapter 11 Cases
(3/4) If approved by the Bankruptcy Court, the settlement will create a special “Shortfall Claim” to benefit customers, as previously proposed by the FTX Debtors in July, and facilitate an offer to eligible customers to settle customer preference exposure at an agreed amount.
— FTX (@FTX_Official) October 17, 2023
The proposed settlement aims to resolve long-standing customer property disputes that have plagued FTX.com and FTX US. It revolves around the creation of a special “Shortfall Claim” designed to benefit FTX clients.
This concept was initially introduced in July by FTX Debtors. It also facilitates an offer to eligible customers to settle customer preference exposure at a mutually agreed-upon amount.
Meanwhile, all creditor representatives involved in this intricate process have thrown their support behind an amended Plan of Reorganization, scheduled for filing by December 16, 2023.
If the amended plan is given the green light, it’s expected that customers will receive over 90% of the distributable value worldwide.
The Anatomy of the Amended Plan OF FTX
The amended plan categorizes FTX debtors’ assets into three pools: those earmarked for FTX.com customers, assets designated for FTX US customers, and a “general pool” of other assets. The crucial element is the “shortfall claim.”
Under this arrangement, clients of FTX.com and FTX.US are set to benefit from this fund, which is estimated at a substantial $8.9 billion for FTX.com and $166 million for its United States affiliate.
Assuming approval by the bankruptcy court by the second quarter of 2024, customers of both exchanges can anticipate substantial recoveries. However, it’s important to note that full recovery is unlikely, especially for FTX.com clients. Non-customers with claims against the General Pool may also face losses.
Preference Settlement Offer for FTX Clients
In order to provide clarity regarding preference exposure, FTX Debtors have outlined an offer. Eligible customers who approve the amended plan will have the opportunity to address any preference exposure by either reducing their claim or accepting a cash payment.
The amount, known as the “Preference Settlement Amount,” will be equal to 15% of the excess of withdrawals over deposits during the nine days preceding the Chapter 11 cases. This offer aims to ensure fairness among clients.
While the proposed preference settlement offer is still pending approval from the bankruptcy court and may undergo changes, it represents a significant step toward rectifying the uncertainties surrounding preference exposure for FTX clients.