FTX Reorganization Takes New Plan : How This Alters User Asset Valuation & Impact on Creditors

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FTX Debtors have recently submitted a revised Plan of Reorganization, which has sparked discussions due to its notable divergence from the original Terms of Service (TOS) of FTX Trading. This revised plan was filed just yesterday, following an agreement reached with creditor stakeholders back in October.

Redefining Asset Ownership

The crux of the controversy lies in the approach to valuing digital assets. Contrary to the FTX TOS, which regarded digital assets as the property of users, the reorganization plan proposes that these assets be valued based on their conversion rates as of the petition date. This deviation from the FTX’s initial policy has raised questions about the implications for users and their holdings.

The proposed plan, which is still subject to further revisions and stakeholder input, aims to guide the recovery process for unsecured creditors of FTX. The plan’s approval by the court will set the stage for creditors to cast their votes. The objective, as stated by the Official Committee, remains to maximize recoveries for the creditors and expedite the distribution of funds.

Legal and Operational Nuances of the Plan

Among the various provisions, the plan outlines the treatment of unimpaired claims, the acceptance criteria for impaired classes, and the elimination of vacant classes. It also details the procedures for voting and the treatment of intercompany interests. The plan’s implementation involves the Debtors operating as debtors-in-possession until the effective date and outlines a comprehensive settlement of claims and interests, which includes addressing allegations of fraud and misappropriation by former insiders.

The plan further proposes a customer preference settlement, aimed at resolving specific claims and actions related to customer entitlements. This settlement is subject to the court’s approval and is designed to be fair and equitable for all involved parties. Additionally, the plan includes provisions for substantive consolidation, which involves merging the estates of the Consolidated Debtors into a single entity for implementing it.

As FTX Debtors move forward with this plan, the departure from the original Terms of Service concerning digital asset ownership marks a pivotal point in the bankrupt company’s restructuring efforts.