Creditors face losses in FTX's reorganization plan amid soaring legal fees, with a proposal to repay billions pending approval.
The ongoing saga of the FTX bankruptcy has taken several turns, with the latest developments indicating both a heavy financial toll on creditors and substantial costs incurred during the bankruptcy process itself. The defunct cryptocurrency exchange's attempts to reorganize and address its debts have revealed a complex and costly affair.
FTX Debtors have filed an amended Chapter 11 reorganization plan that suggests a valuation of creditors' claims based on cryptocurrency prices as of November 11, 2022, the date FTX filed for bankruptcy. This valuation could lead to significant losses for creditors, given the volatile nature of cryptocurrency prices. The reorganization plan is part of FTX's efforts to address the financial chaos following its collapse, but it has raised concerns among those owed money by the exchange.
Adding to the financial strain, FTX has been hemorrhaging money on bankruptcy-related fees, with reports indicating that the exchange is losing around $53,000 every hour on legal and advisory costs. Over a three-month period, these expenses have totaled at least $118.1 million. The largest bill was submitted by management consulting firm Alvarez and Marshall. The court-appointed fee examiner has raised alarms over the size of the billings from advisory firms, highlighting the need for scrutiny over these expenses.
Despite these challenges, FTX has put forward a proposal to pay back billions of dollars to customers and creditors, which could potentially end the bankruptcy case. The proposal involves liquidating most of the company's cryptocurrencies and distributing the proceeds. However, there are still unanswered questions, such as the potential relaunch of FTX's exchange and the exact amounts creditors can expect to recover. The proposed plan is set to be presented to creditors for approval in 2024.
For those affected by the FTX bankruptcy, the situation underscores the risks associated with cryptocurrency investments and the importance of due diligence. Creditors and customers should stay informed about the reorganization plan and participate in the approval process when it commences. Additionally, the high costs of bankruptcy proceedings highlight the need for transparency and oversight in such cases to ensure that the interests of creditors are not overshadowed by legal and advisory fees.
