FTX Bankruptcy Saga Creditors Oppose Cash Payments Call for InKind Reimbursements

A group of creditors of FTX, led by Sunil Kavuri, has raised objections to the proposed bankruptcy reorganization plan of the company, citing various concerns. The primary issue at hand is that the plan does not prioritize the best interests of the creditors.

Their main argument is that receiving cash reimbursement would result in taxable events, creating unnecessary financial burdens. Instead, they have proposed to receive assets in-kind, which they believe would be a fairer solution and avoid the issue of forced taxation.

The controversy surrounding the bankruptcy is further exacerbated by tax implications. Creditors are hesitant to accept cash payments due to potential tax liabilities, especially after FTX settled with the IRS for a significantly reduced amount. This disagreement among creditors has complicated the overall bankruptcy plan.

Additionally, there have been disputes over the distribution of funds by FTX’s estate, with some creditors claiming that the assets being distributed were stolen. This has strained the already tense relationship between the parties involved.

This discord between FTX’s bankruptcy estate and its creditors is not a new development. The Official Committee of Unsecured Creditors (UCC) expressed disappointment in 2023 over the estate’s reorganization plan, as they felt their input was not considered. The UCC argued that the proposed provisions would only prolong and complicate the bankruptcy process.

The conflict reached a peak in January 2024 when creditors demanded reimbursement based on current market prices rather than the depressed prices from 2022. This highlighted a major disagreement in the bankruptcy proceedings regarding property rights and valuation.

In February 2024, tensions escalated as FTX creditors filed a lawsuit against Sullivan & Cromwell, the legal firm overseeing the bankruptcy. The firm was accused of being complicit in FTX’s fraudulent activities, although an independent investigation later cleared them of any wrongdoing. Despite this, the lawsuit underscores the deep mistrust and legal battles that have characterized FTX’s bankruptcy process, emphasizing the intricate nature and high stakes involved in resolving creditors’ claims.