FTX Bankruptcy Saga Creditors Oppose Cash Payments Call for InKind Reimbursements
A group of FTX creditors, led by Sunil Kavuri, has raised objections to FTX’s proposed bankruptcy reorganization plan, citing various concerns. The main issue revolves around the plan not being in the best interests of the creditors.
The creditors argue that receiving cash payments would result in taxable events, creating unnecessary financial burdens. Instead, they have proposed receiving assets in-kind, which they believe would be a fairer solution and avoid tax issues.
The situation is further complicated by tax implications and legal disputes. Creditors are wary of cash payments due to potential tax liabilities, especially after FTX settled with the IRS for a significantly reduced amount. This disagreement has led to differing opinions among creditors regarding the overall bankruptcy plan.
Moreover, tensions arose when FTX attempted to distribute funds, with creditors claiming that some assets were obtained unlawfully. This disagreement has strained relations between the parties involved.
The discontent between FTX’s bankruptcy estate and its creditors is not new. In 2023, the Official Committee of Unsecured Creditors expressed disappointment with the estate’s reorganization plan, feeling their input was ignored. They believed the proposed provisions would only complicate the bankruptcy process further.
The conflict escalated in January 2024 when creditors demanded reimbursement based on current market prices rather than lower prices from 2022. This highlighted a major dispute over property rights and valuation in the bankruptcy proceedings.
In February 2024, tensions increased as FTX creditors filed a lawsuit against Sullivan & Cromwell, the legal firm overseeing the bankruptcy. They accused the firm of being complicit in FTX’s fraudulent activities, although an independent investigation later cleared them of any wrongdoing. This lawsuit underscores the mistrust and legal battles that have characterized FTX’s bankruptcy process, emphasizing the complexity and high stakes involved in resolving creditors’ claims.