The US Trustee and a group of creditors have important concerns that will likely influence the court’s decision.
The FTX reorganization has hit a new challenge as the US Trustee overseeing the case has serious objections to the updated plan for the crypto exchange.
The Trustee, Andrew R. Vara, and a group of creditors have pointed out several problems with the proposed plan, even though FTX says it has strong support from most creditors.
FTX, the bankrupt crypto trading platform, claimed that its updated reorganization plan had strong support from creditors who could vote. However, the Trustee and some creditors disagree, highlighting issues in the plan.
Trustee raises concerns over data breach costs
One of the Trustee’s main worries is about the legal protections in the reorganization plan. Vara believes the plan gives too much legal protection to the people managing the estate and their advisers.
He argues that these protections go way beyond what is normally given to estate professionals by law. “This level of immunity is much greater than what estate professionals usually receive under the Court’s supervision,” Vara said in his filing.
The Trustee also raised a concern about the unequal treatment of creditors based on the size of their claims. Vara highlighted that smaller creditors, those with claims under $50,000, would receive a lower percentage of their money back (119%) compared to larger creditors, who could receive up to 143%.
Vara believes this difference is unfair, especially since the FTX estate likely has enough money to pay all creditors at the same rate. He questioned why the plan favors larger creditors when there’s no clear legal difference between their claims.
Additionally, Vara pointed out issues with how costs related to a data breach at FTX’s service provider, Kroll, are being handled. He noted that the estate professionals are seeking millions of dollars in compensation for managing the breach.
Alongside the objections from the US Trustee, a separate complaint was filed by a group of FTX creditors led by Sunil Kavuri. Representing the largest group of FTX creditors, Kavuri has been openly critical of the reorganization plan.
Kavuri believes that creditors should have the choice to receive their repayment in cryptocurrency, such as Bitcoin, instead of in US dollars. He argues that this option could help creditors avoid a taxable event, potentially leading to a better financial outcome after taxes.
Kavuri also pointed out that BlockFi, another bankrupt crypto company, successfully offered a similar option with the assistance of Coinbase, indicating that this approach could be possible for FTX as well.
