FTX’s restructuring plan is under XEM as it faces multiple challenges ahead of its confirmation hearing in October.
On August 23, Andrew R. Vara, the U.S. bankruptcy overseer for FTX, filed an objection to the plan, citing 10 key issues.
Also Read: The Complete FTX Collapse: How Sam Bankman-Fried's Empire Fell
The shortcomings of FTX's restructuring plan
Vara's main issue is the legal immunity granted to some of the entities involved in the bankruptcy. He argues that the plan provides too much legal protection for the department's administrators and advisers, going beyond what is normally provided under the relevant regulations. He stresses that such immunity is unnecessary for professionals whose employment and remuneration are already approved and monitored by the court.
“In fact, such an exemption would eliminate the exceptions for gross negligence, willful misconduct, and fraud. Moreover, this exemption would go far beyond the protections afforded to department professionals whose employment and wages are approved by the court,”
Vara added .
Vara also criticized the plan for treating creditors unfairly. He noted that the top 2% of creditors could receive up to 143% of their claims. In contrast, the remaining 98% would receive only 119%. This disparity, Vara said, raises concerns about fairness.
“The debtors will have no further business, [so] setting aside the Supplementary Compensation Fund for the largest 2% of customers by volume has no business-related rationale,”
Vara said.
Additionally, the U.S. watchdog objected to the inclusion of costs related to last year’s Kroll data breach in the plan. According to him, these costs should not be burdened on the debtor’s departments. Moreover, he pointed out that the department’s experts had requested millions of dollars in compensation to resolve the case.
“The Plan should be amended to clearly state that nothing in the Plan is intended to address any claim or cause of action related to the Kroll data breach, and nothing in the Plan is intended to be construed as authorizing, nor prejudicing, any party’s ability to contest any professional fees related to the data breach,”
he declared.
Given these concerns, Vara urged the court to reject FTX's restructuring plan unless the bankrupt company satisfactorily addresses the issues.
Before the U.S. regulator objected, FTX creditors, including Sunil Kavuri and two others, also filed an objection to the restructuring plan, citing the plan’s broad exemption provisions and lack of class-based distribution options for customers.
The creditors argued that the broad definition of exempt parties conflicts with current case law and may unfairly encompass pre-petition conduct. They also reiterated their request for class distributions to help them avoid mandatory taxation.
“It is clear that the Debtors' Proposed Plan would impose additional hardship on customers through mandatory taxation that could be avoided by making a 'class-by-class' distribution,”
creditors argue .
Despite these objections, FTX announced last week that its restructuring plan had received overwhelming support from creditors, with more than 95% of them — representing 99% of the value of the claims — backing the plan.
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