Nearly two years after it collapsed financially, FTX is hoping to secure confirmation of its Chapter 11 plan in Delaware bankruptcy court Monday. The debtor says that under its proposal, the company will repay former customers in full, with interest, for the billions of dollars they lost, but the insolvent cryptocurrency business faces a slew of objections from the U.S. Trustee's Office and others.
The estimated recovery for customers, based on the value of cryptocurrency in November 2022 — when FTX sought bankruptcy protection — was unimaginable at the time, as crypto prices had lost more than half their peak value, and FTX CEO John J. Ray III had to figure out where the various assets of FTX and its affiliates were.
"For them to get 100% or even better, it's simply astounding," Anthony M. Sabino, a lawyer and professor of law at St. John's University, told Law360. If confirmed, "It brings a very good, very satisfying end to a rather horrific situation."
Some see FTX's Chapter 11 plan as a major accomplishment, while others, particularly some outspoken creditors, have balked at the debtor's claims of success and remain upset about distributions they argue should be higher.
Winning confirmation will also require FTX to convince U.S. Bankruptcy Judge John T. Dorsey, who is overseeing the case in Delaware, that the liability waivers in the plan are not in the same boat as those banned by the U.S. Supreme Court's June 2024 decision in the Purdue Pharma bankruptcy.
The FTX reorganization plan has received support from all voting classes, with 95% of voting creditors favoring the plan, the company said in a statement. More than two-thirds of claims by voting value participated in the voting process, FTX said.
"The support for the plan is evident from the overwhelmingly positive voting results and relative paucity of objections received, despite this being one of the most complex Chapter 11 cases in history and the debtors having millions of stakeholders worldwide," the company said.
While Jordan Sazant, a Proskauer Rose attorney for one of the objecting parties, acknowledged the debtors faced "a very difficult job" taking over FTX and liquidating its assets to maximize recoveries. He said the touted recoveries are not as remarkable as FTX says, instead attributing it to rising crypto prices.
"It's just, frankly, the run-up of crypto markets while they were holding crypto assets. There was nothing that they did to do this," Sazant said, noting that customers' digital assets would be worth far more had they been left as crypto.
The plan estimated customers' claims in dollars based on the value of their digital assets in November 2022, a method that Judge Dorsey affirmed in January.
FTX said that as of Sept. 30 this year, 10 parties still have unresolved objections.
"A small number of parties have persisted in pursuing objections that lack merit and are primarily designed to advance parochial interests in defending or pursuing litigation unrelated to the plan," the debtor wrote.