Creditors of FTX Bankruptcy Dispute Cash Payouts Insist on InKind Reimbursements
A prominent faction of FTX creditors, led by Sunil Kavuri, has raised objections to FTX’s proposed bankruptcy reorganization plan, citing various concerns. A key issue is the creditors’ belief that the plan does not prioritize their best interests.
The creditors argue that receiving cash payments would trigger taxable events, leading to unnecessary financial burdens. As an alternative, they have proposed receiving assets in-kind, which they believe would be a fairer solution and avoid taxation issues.
The situation is further complicated by tax implications and legal disputes. The creditors’ resistance to cash payments stems from the settlement between FTX and the IRS, which significantly reduced the tax bill from $24 billion to $200 million. Despite this reduction, creditors remain divided on the overall bankruptcy plan.
Furthermore, tensions have risen over the distribution of funds by the FTX estate, with creditors alleging that some of the assets being distributed were stolen. This has escalated the conflict between the parties involved.
This conflict is not new, as historical discontent between FTX’s bankruptcy estate and its creditors dates back to 2023. The Official Committee of Unsecured Creditors (UCC) expressed disappointment with the estate’s reorganization plan, stating that their input was not considered. The UCC believes that the proposed provisions will only prolong and complicate the bankruptcy process.
In January 2024, creditors demanded reimbursement based on current market prices rather than depressed prices from 2022, highlighting a major dispute regarding property rights and valuation in the bankruptcy proceedings.
In February 2024, tensions escalated further 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. This lawsuit underscores the deep mistrust and legal battles that have characterized FTX’s bankruptcy process, emphasizing the complex nature of resolving creditors’ claims.