FTX Repayment Approaching: Claimants Must Choose Procedure by Mid-August; Creditors with Claims Below $50,000 Eligible for One-Time Payout
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FTX Repayment Approaching: Claimants Must Choose Procedure by Mid-August; Creditors with Claims Below $50,000 Eligible for One-Time Payout
Recently, FTX's restructuring plan has entered the voting phase. This article compiles key information of concern to creditors, including critical payout milestones, claim eligibility, and compensation arrangements.
Navigating Web3 tides with focused insightsBy Nancy, PANews
The upcoming $16 billion in FTX payouts is seen as a significant buying force that could boost the crypto market. Recently, FTX's restructuring plan has entered the voting phase. This article by PANews compiles key information of concern to creditors, including critical payout milestones, eligible claimants, and compensation schemes.
Voting window closes on August 17; claims can be filed in either The Bahamas or the U.S.
Recently, the Official Committee of Unsecured Creditors (UCC) for FTX posted on X that the FTX debtors are sending solicitation materials and ballots to customers and creditors via Kroll, allowing them to vote on the customer claims plan. The voting deadline is 05:00 Beijing time on August 17. Results will be released seven days before the confirmation hearing, scheduled for 23:00 Beijing time on October 7.
Creditors are primarily divided into three categories: those "entitled to vote," those "deemed to accept the plan without voting rights," and those "deemed to reject the plan without voting rights." Specifically, users holding fiat or cryptocurrencies other than FTT have voting rights. Those holding only FTT/NFTs are deemed to reject the plan and cannot vote. Claims are further classified by entity, amount, and type, mostly falling into Class 5A, Class 7A, and Classes 13–18.
Class 5A includes FTX.com customers with claims exceeding $50,000; Class 7A includes those with claims under $50,000; Classes 13–18 are ineligible for any recovery and cannot vote, including equity holders, FTT holders, and small claimants.
Both Class 5A and Class 7A FTX.com customers may choose to file their claims through FTX DM’s liquidation process in The Bahamas or through the U.S. process, but they can only receive compensation from one program, and the decision is irrevocable. Regardless of which jurisdiction they choose, creditors are expected to receive roughly equivalent recoveries at the same time, provided the plan is confirmed and all KYC, AML, and tax reporting requirements are met.
Each payout process has its advantages. For example, FTT or small claim holders who are not supported in the U.S. process might still recover through the Bahamian proceedings. Meanwhile, the U.S.-led restructuring led by John Ray controls most of FTX’s assets, offering higher likelihood of payout.
Additionally, non-U.S. creditors are not subject to the 30% U.S. withholding tax. According to disclosed documents, the Ad Hoc Committee of Non-U.S. Customers, representing over 31 countries globally with more than 60 members, collectively holds approximately $4.5 billion in Dotcom customer claims (claims from users of FTX.com) as of June 28, 2024.
Class 7A creditors eligible for lump-sum payout, with preference for stablecoin payments
If the bankruptcy protection plan is approved, all FTX.com customers are expected to receive full repayment, estimated between 119 to 143 cents per dollar claimed, plus post-petition interest on unpaid claims accrued from the petition date to the applicable distribution date at a consensus rate of 9%. According to the Claims User Guide issued by PwC, the joint provisional liquidators of FTX, the first interim dividend distribution is expected by late 2024 or early 2025.
Class 7A claims are set at 119% and are expected to receive a lump-sum payment within 60 days; these creditors make up about 98% of the total. Class 5A claims are expected to recover between 129% and 143%, with the remaining value distributed through the Supplemental Relief Fund after full repayment and post-petition interest are paid. This fund will be financed by recoveries originally allocated to senior subordinated government claimants. Under the rules, Class 5A payouts will occur in multiple stages with unclear timelines, though they may opt to reduce their claim amount to below $50,000 to qualify for expedited recovery.
Payment priority is also crucial to creditor interests. Previously, due to creditor opposition, the IRS agreed to defer $685 million of its $885 million claim until after customers are fully repaid. More recently, FTX reached a settlement with the U.S. Commodity Futures Trading Commission (CFTC), positioning its $4 billion claim behind customer claims and interest. Payments to the CFTC will go into the Supplemental Relief Fund, intended to compensate severely affected cryptocurrency holders (paid only if funds are sufficient).
Regarding payout form, FTX creditors previously noted that cash distributions would trigger tax liabilities upon receipt, expressing a strong preference for stablecoin distributions instead. In response, the UCC stated it will urge the debtors to offer stablecoin options to as many creditors as possible.
The UCC believes that while the restructuring plan is not perfect, it represents the best available option to maximize recoveries for creditors. If creditor opposition causes the Chapter 11 restructuring to convert into a Chapter 7 liquidation, recoveries would likely decrease, payout timelines would extend, and litigation costs would rise. Therefore, the committee encourages creditors to vote in favor of the plan.
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