FTX Reorganization Plan Is Facing Fierce Opposition From US Trustee, Creditors

• The US Trustee and a group of creditors have raised major opposition to the FTX reorganization plan.
• Despite legal challenges, FTX CEO John J. Ray III remains confident that the reorganization plan will proceed as scheduled.

Recent filings in the FTX bankruptcy case show broad objections to the FTX reorganization plan by the U.S. Trustee and a group of creditors.

U.S. Trustee and Creditors Oppose FTX Reorganization Plan

Although the FTX reorganization plan had broad support from the creditor body, with over 95% of the votes in its favour, it is still marred by legal challenges that may have implications for how it will be implemented.

The U.S. Trustee overseeing the case, Andrew R. Vara, listed the top ten major objections to the plan. 

Most of the objections by Vara are on three major issues: very broad legal releases given to most of the bankruptcy officials; different treatment of same-class creditors based on their size; and the failure to exclude what has been claimed as unnecessary expenditure related to a data breach by one of the estate service providers.

Vara criticizes that estate professionals have very highly excessive immunities and such immunities are much far beyond that protection typically afforded under the relevant statutes. 

He also slammed the FTX reorganization plan permitting the expenses related to breach to be covered, saying that it should not be left upon the estate.

Beyond Vara, others who have filed complaints include Sunil Kavuri, who represents the largest group of FTX creditors, and other representatives of the now-defunct platform’s retail customers.

Kavuri has been a long-time proponent of in-kind reimbursements, meaning that creditors who lost Bitcoin should get it back—not the monetary equivalent of whatever the price is at the time. Doing this might bypass tax liabilities on the losses of creditors.

FTX CEO Remains Confident Despite Legal Objections

Despite such challenges, the FTX CEO, John J. Ray III, was optimistic about the reorganization plan because it enjoyed overwhelming support from the creditors, and it was on course to reach completion as originally projected with full payment and interest to all its creditors other than governmental.

The case still unravels with an independent examiner also tasked to probe into the bankruptcy proceedings after a ruling reversing an initial denial of his appointment, Robert Cleary.