In a significant stride within the ongoing Chapter 11 proceedings involving FTX and its affiliated debtors, a proposed Customer Shortfall Settlement has emerged, promising a substantial payout to creditors. Creditors could receive an $8.9 billion payout, while FTX.US creditors might secure $166 million if the settlement gains approval from the Bankruptcy Court.
The Customer Shortfall Settlement, a result of extensive negotiations, holds the potential to redefine the fate of its customers. If incorporated into the revised Plan of Reorganization, expected to be presented by FTX Debtors before December 16, 2023, the settlement could put an end to persistent customer property disputes and hasten the approval process for the Revised Plan in Q2 2024.
At the core of the matter lies the question of whether customers of FTX.com and FTX.US possessed property interests in specific assets or were merely unsecured claimants. This settlement seeks to resolve this uncertainty by granting customers an unsecured claim against its debtors, offering equitable priority for certain segregated assets.
John J. Ray III, CEO and Chief Restructuring Officer of FTX Debtors, expressed his optimism, labeling the proposed settlement a “major milestone.” He lauded the collaborative efforts of debtors, creditors, and the independent Board of Directors in navigating the intricate financial landscape.
FTX Amended Plan Divides Assets and Introduces Preference Settlement Offer
The revised plan outlines the division of assets into three distinct pools: one for its customers, another for U.S. customers, and a general asset pool. Notably, only the first two groups are eligible for shortfall claims. However, customers may not receive full payments, with its customers potentially facing higher losses.
Moreover, the plan includes a Preference Settlement Offer for eligible customers, allowing them to settle preference exposure linked to their claims. Customers facing withdrawals surpassing deposits during a specific period may experience a 15% reduction.
Certain customers, particularly insiders and affiliates privy to misappropriation details, may be exempted from this settlement. Claims below $250,000 within the specified period will remain unaffected. The extent of losses hinges on various factors, including asset recovery endeavors, litigation outcomes, and unresolved issues, shaping the outcome for the platform’s customers in the coming months.