FTX debtors reach pivotal settlement to resolve customer property disputes

• The “Amended Plan” holds the potential to resolve the customer property litigation that has been a central concern.
• The recovery outlook for customers and non-customers will depend on various factors.

FTX [FTT] and its affiliated debtors, known as the “FTX Debtors,” have made a significant breakthrough by proposing a settlement to address long-standing customer property disputes.

This landmark agreement, termed the “Customer Shortfall Settlement,” represents a major step in the ongoing efforts of FTX Debtors to address customer concerns.

The FTX Debtors plan to submit the Customer Shortfall Settlement as part of an amended Plan of Reorganization (the “Amended Plan”) to the Bankruptcy Court by 16 December, 2023. If approved, this settlement is expected to clear the path for the confirmation of the Amended Plan by the second quarter of 2024.

The dispute was whether customers held property interests in certain assets or were restricted to unsecured claims of equal standing with general creditors. The Customer Shortfall Settlement addresses this issue by establishing an unsecured but equitable claim for customers against FTX Debtors. This also includes certain property segregated or taken from the exchanges.

This pivotal agreement follows extensive negotiations between the FTX Debtors, the Executive Committee of the Ad Hoc Committee of Non-U.S. Customers, the Official Committee of Unsecured Creditors, and putative class representatives. All involved parties have entered into a Settlement and Plan Support Agreement.

The Amended Plan, Customer Recoveries, and Preference Settlement

Under the Amended Plan, FTX.com and FTX US customers can assert a “Shortfall Claim” against the General Pool. This is to compensate for the estimated value of assets missing from their respective exchanges.

This claim is estimated at approximately $8.9 billion for FTX.com customers and $166 million for FTX US customers.

Customers of FTX.com and FTX US could collectively receive over 90% of the distributable value worldwide.  Also, the customers would receive funds only if the court approves the plan by the second quarter of 2024.

It’s important to note that FTX Debtors anticipate that customers of both exchanges may not receive full compensation. FTX.com customers are expected to face a higher percentage of losses.