Creditors of FTX Bankruptcy Dispute Cash Payouts Call for InKind Reimbursements
A significant faction of FTX creditors, spearheaded by Sunil Kavuri, has raised objections to FTX’s proposed bankruptcy reorganization plan, sparking various concerns. A primary issue at hand is the belief that the plan does not prioritize the best interests of the creditors.
Their main contention revolves around the potential tax implications of receiving cash reimbursements, which could result in unnecessary financial burdens. As a solution, they have put forth a proposal for reimbursement in the form of assets, which they argue would be a fairer approach and would avoid the problem of forced taxation.
The complications surrounding the bankruptcy also extend to legal matters and tax implications. The creditors’ reluctance to accept cash payments, due to the associated tax liabilities, comes at a time when FTX has reached a settlement with the IRS, significantly reducing its tax bill from $24 billion to $200 million. Despite this reduction, there is a division among creditors regarding the overall bankruptcy plan.
Furthermore, tensions have arisen over the distribution of funds by the FTX estate, with creditors alleging that the estate is trying to distribute assets that were obtained through illicit means. This conflict has strained relations between the parties involved even further.
The discord between FTX’s bankruptcy estate and its creditors is not a new development. The Official Committee of Unsecured Creditors (UCC) of FTX expressed profound disappointment in 2023 over the estate’s reorganization plan, which did not take their input into account. The UCC argued that the proposed provisions would only serve to complicate and prolong the bankruptcy process unnecessarily. This ongoing conflict escalated in January 2024, with creditors demanding reimbursement based on current market prices rather than the depressed prices from 2022, highlighting a significant disagreement over property rights and valuation in the bankruptcy proceedings.
In February 2024, tensions heightened as FTX creditors filed a lawsuit against Sullivan & Cromwell, the legal firm overseeing the bankruptcy proceedings. The firm was accused of being complicit in FTX’s fraudulent activities, although they claimed to be unaware of the issue prior to the exchange’s collapse. An independent investigation later cleared Sullivan & Cromwell of any wrongdoing, stating that they had no prior knowledge of the fraud. Nevertheless, the lawsuit underscores the deep-seated mistrust and legal battles that have characterized FTX’s bankruptcy process, emphasizing the intricate nature and high stakes involved in resolving the creditors’ claims.