On October 17, 2023, FTX Debtors made a major announcement regarding their ongoing Chapter 11 cases, marking a major milestone in their efforts to resolve complex client property disputes. After extensive discussions involving key stakeholders, including the Ad Hoc Committee of Non-US Customers, the Unsecured Creditors Committee and class action plaintiffs, FTX Debtors have reached a proposed settlement.
If approved by the bankruptcy court, this settlement will result in the creation of a special “deficiency claim” intended to benefit customers. This concept was initially proposed by FTX Debtors in July. The primary purpose is to enable an offer to eligible customers so that they can settle their customer preferred exposure at an agreed amount. All creditor representatives involved in the negotiations have agreed to support a related amended reorganization plan, which is expected to be filed by December 16, 2023.
In a related development, FTX’s Official Committee of Unsecured Creditors has expressed support for the proposed settlement and the amended Plan Term Sheet. The Plan Term Sheet represents a compromise between various parties, including the Commission, the Debtors, the ad hoc customer committee and other representatives. It addresses a range of issues designed to balance the rights of US customer and non-customer creditors and foreign debtors.
The committee believes that the amended Plan Term Sheet will expedite the Chapter 11 cases and timeline for recovery from creditors and customers, although they recognize that significant work remains to be done. They remain committed to protecting the interests of customers and creditors throughout this process.
FTX Debtors detailed their proposed settlement and amended reorganization plan in their official announcement on October 16, 2023. The settlement, known as the “Customer Shortfall Settlement,” is expected to resolve customer property disputes and pave the way for the amended plan, which must be submitted by December 16, 2023. If approved, this settlement will resolve customer property disputes. filed against FTX debtors and expedite the confirmation of the Amended Plan in the second quarter of 2024.
The Customer Shortfall Settlement addresses the claim that customers of FTX.com and FTX US have ownership interests in certain assets, rather than an unsecured claim. It provides customers with an unsecured claim that has equitable priority over certain separated properties.
The amended plan divides FTX Debtors’ assets into three groups and provides for deficiency claims for customers of FTX.com and FTX US. It is estimated that customers worldwide will receive more than 90% of the distributable value if the Custom Plan is approved. However, it is important to note that full payment may not be guaranteed for all customers.
The proposed settlement also includes an opportunity for eligible customers to resolve preferential exposure associated with their claims. The FTX Accounts Payable will offer eligible customers the opportunity to reduce their claim by an amount specified in the amended plan ballot. This preferential settlement offer is subject to the approval of the Bankruptcy Court.
Customers and creditors can access additional information regarding the legal proceedings and the proposed settlement on the US Bankruptcy Court website.
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