FTX Customers to Receive 90% of Funds Back in Proposed Dispute Settlement

Insolvent crypto exchange FTX has proposed a settlement plan addressing the ongoing customer property disagreements in their Chapter 11 cases, termed the “Customer Shortfall Settlement”.

The FTX Debtors are set to submit an updated Plan of Reorganization (“Amended Plan”) by December 16, 2023. If greenlit by the Bankruptcy Court, this plan would put an end to the litigation filed against FTX Debtors by customers and clear the path for the Amended Plan’s affirmation by mid-2024.

Earlier today, the FTX Debtors filed an amended Plan Term Sheet (https://t.co/LgZCcjxP1m) that the Committee supports and which it negotiated on behalf of creditors and customers.

— Official Committee of Unsecured Creditors of FTX (@FTX_Committee) October 17, 2023

Newly Proposed Settlement Offer

The litigation claimed that FTX.com and FTX US clients held property stakes in certain assets, rather than just an unsecured claim comparable to general creditors. This newly proposed settlement offers customers a claim against FTX Debtors. Though unsecured, it gives an equitable priority to certain properties associated with the exchanges.

In its statement FTX said that the decision comes after prolonged negotiations involving FTX Debtors, the Executive Committee of the Ad Hoc Committee of Non-U.S. Customers, the Official Committee of Unsecured Creditors, and potential class representatives. All parties have since endorsed a Settlement and Plan Support Agreement, which can be viewed on the Bankruptcy Court’s records.

FTX CEO, John J. Ray III, commented, “This proposed settlement marks a pivotal moment. From an incredibly challenging financial situation, the debtors and creditors have extracted significant value. The independent Board of Directors deserves special mention for their invaluable guidance throughout this tumultuous period.”

Here’s What’s in the Making

The Amended Plan closely mirrors the Draft Plan introduced on July 1, 2023. Notably:

– FTX Debtors’ assets will be categorised into three segments based on chapter 11 initiation circumstances.

– FTX.com and FTX US customers will have a “Shortfall Claim” against the “General Pool”, aligning with the estimated value of absent assets from their exchange. This Shortfall Claim approximates $8.9 billion for FTX.com and $166 million for FTX US.

– 66% of the General Pool will exclusively cater to Shortfall Claims, with the remaining portion to be distributed proportionally.

90% of Customers to Receive Funds Back

In case the Bankruptcy Court signs off on the Amended Plan in Q2 2024, FTX Debtors estimate FTX.com and FTX US clients will jointly receive over 90% of the total distributable value globally.

Future recoveries remain uncertain, influenced by various factors including legal resolutions, digital asset price fluctuations, and ongoing asset recovery efforts.

Finally, the Customer Shortfall Settlement provides eligible customers an opportunity to clarify any potential preference exposure related to their claims. FTX said further details regarding the settlement offer are available in the Support Agreement term sheet.