The Impact of FTX’s Reorganization Plan on Creditors: Massive Potential Losses

The Impact of FTX’s Reorganization Plan on Creditors: Massive Potential Losses

FTX Debtors recently filed an amended Chapter 11 reorganization plan, which has garnered significant attention due to the potential losses it may cause for creditors. The plan proposes valuing the creditors’ claims at crypto prices on November 11, 2022, the day FTX filed for bankruptcy. Unfortunately, this particular date became notorious as it marked the beginning of a downward spiral for the crypto market. As a result, major cryptocurrency prices were significantly lower on that day compared to their current market prices. Consequently, FTX creditors will face substantial losses compared to the value of their assets at present.

On November 11, 2022, Bitcoin (BTC) was trading slightly above $17,500 according to CryptoSlate data. However, over the past year, the price of Bitcoin has more than doubled, reaching $41,649.57 at the time of writing. This means that FTX creditors will suffer a loss of over $24,000 per BTC. This substantial loss not only underscores the volatility of the cryptocurrency market but also highlights the unfortunate timing of FTX’s bankruptcy filing.

Similar to Bitcoin, Ethereum (ETH) experienced significant price growth in the past year. On November 11, 2022, its price was around $1,284, while at the time of writing, it stands at $2,214, as reported by CryptoSlate data. Consequently, the defunct exchange’s creditors will face almost $1,000 in losses per ETH. The growth in Ethereum’s price further emphasizes the financial challenges that await the creditors.

Sunil Kavuri, an FTX creditor, publicly expressed dissatisfaction with the new reorganization plan, arguing that it disregards FTX’s own Terms of Service. According to the Terms of Service, digital assets are explicitly stated as the property of users, not FTX Trading. This disregard for their own policies only deepens the frustration for creditors who now not only face substantial losses but also feel that their rights are being ignored.

The Voting Process: Implications for Creditors

Before finalizing the reorganization plan, specific classes of FTX creditors will have the opportunity to vote on it. This voting process will significantly impact the outcome for individual creditors, as they can express their views on the proposed plan. The decisions made during this voting process will determine the final resolution and the extent to which creditors can recover their losses.

FTX’s recently amended reorganization plan raises serious concerns for the exchange’s creditors. The use of November 11, 2022, as the valuation date for their claims results in substantial potential losses due to the subsequent growth in cryptocurrency prices. Moreover, the plan’s disregard for FTX’s own Terms of Service adds insult to injury for the affected creditors. The forthcoming voting process will determine their fate, making it crucial for creditors to voice their opinions and fight for a fair resolution.


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