Bankruptcy Judge Gives FTX Approval to Repay $16B to Users

U.S. District Judge John Dorsey approves FTX’s reorganization plan, paving the way for the distribution of $16 billion to customers of the exchange. 

The judge approved the plan yesterday during a Monday hearing in the U.S. Bankruptcy Court for the District of Delaware. Notably, Judge Dorsey praised the plan as a model way of handling Chapter 11 bankruptcies like the FTX case. 

It bears mentioning that 94.48% of FTX Dotcom creditors voted in support of the plan before it was submitted to Judge Dorsey for approval.  

FTX to Commence Repayment of $16B to Users 

The development comes two years after FTX collapsed due to fraud allegations. Following the collapse and subsequent bankruptcy, customers could not access their crypto assets. With Judge Dorsey approving FTX’s bankruptcy plan, the exchange can distribute funds to users. 

However, FTX will repay customers in cash rather than crypto. As detailed in the bankruptcy plan, 98% of FTX creditors will receive a minimum of 118% of their claim in cash. The amount of claim value was calculated in November 2022 when FTX filed for Chapter 11 bankruptcy. 

Criticisms Trail FTX Cash Distribution Plan 

As expected, the decision to pay FTX creditors in cash rather than crypto had received widespread criticism. Sunil Kavuri, who represents one of FTX’s creditor groups, urged the exchange to repay victims in crypto. 

Another representative, David Adler, suggested that creditors might be taxed heavily if paid in cash rather than crypto. Addressing these demands, Steven P. Coverick, managing director at Alvarez & Marsal North America, noted that the exchange does not have sufficient crypto holdings to repay users in kind. 

Similarly, Judge Dorsey rejected the request for crypto payouts, saying that FTT, FTX’s native token, is valueless. The judge added that since there is no plan to revive the exchange, FTT might remain valueless in the future. 

Upcoming Payments

As reported earlier, payment will commence within 60 days of the court’s approval, which indicates that it will begin before the end of the year. 

According to Chinese blockchain reporter Colin Wu, users whose claims are below $50,000 will receive their payment this year, while those with higher claims will get theirs in the first half of 2025. 

There are speculations that many FTX users would use their cash claims to purchase cryptos, thus revitalizing the broader market. However, some enthusiasts speculate that the funds could be used to buy Christmas gifts since the repayment will commence in the Yuletide period.