FTX reorganisation plan faces criticism over creditor treatment

The FTX (CRYPTO:FTT) reorganisation plan is under intense scrutiny as it heads toward its confirmation hearing in October.

On August 23, 2024, Andrew R. Vara, the U.S. Trustee overseeing the FTX bankruptcy case, filed an objection to the plan, raising ten significant concerns about its fairness and legal provisions.

One of the primary issues highlighted by Vara is the excessive legal immunity granted to certain entities involved in the bankruptcy process.

He argues that the plan offers these entities protection that far exceeds what is typically provided under relevant statutes.

Vara pointed out that such broad immunity would effectively negate the exceptions for gross negligence, willful misconduct, and fraud, which should not be overlooked in the bankruptcy proceedings.

Another critical point of contention is the unequal treatment of creditors under the proposed plan.

Vara noted that the top 2% of creditors could receive up to 143% of their claims, while the remaining 98% would only receive up to 119%.

This disparity has raised concerns about the plan's fairness and equity among all creditors.

Vara questioned the justification for reserving a significant portion of the Supplemental Remission Fund for the largest creditors, given that FTX will not have ongoing business operations.

In addition to these concerns, Vara objected to including costs related to last year’s Kroll data breach in the reorganisation plan.

He argued that these costs should not burden the debtor’s estates, especially since estate professionals have already sought millions in compensation for addressing the breach.

Before Vara’s objection, several FTX creditors had also raised concerns about the plan.

They criticised the broad exculpation provisions and the lack of in-kind distribution options for customers, which they argue could lead to forced taxation and additional hardships.

Despite these objections, FTX claims that its reorganisation plan has received strong preliminary support from creditors, with over 95% of them — representing 99% of the claims by value — endorsing the plan.

As the court date approaches, the debate over the plan's fairness and transparency is likely to intensify.

At the time of reporting, the FTX (FTT) price was $1.51.