FTX Announces Proposed Settlement and Amended Plan in Chapter 11 Cases

On October 17, 2023, FTX Debtors made a significant announcement regarding their ongoing Chapter 11 cases, marking a major milestone in their efforts to resolve complex customer property disputes. After extensive discussions involving key stakeholders, including the Ad Hoc Committee of Non-US Customers, the Unsecured Creditors Committee, and class action plaintiffs, FTX Debtors have reached a proposed settlement.

If approved by the Bankruptcy Court, this settlement will result in the creation of a special "Shortfall Claim" designed to benefit customers. This concept was initially proposed by FTX Debtors in July. The primary goal is to facilitate an offer to eligible customers, allowing them to settle their customer preference exposure at an agreed-upon amount. All creditor representatives involved in the negotiations have agreed to support a related amended Plan of Reorganization, which is expected to be filed by December 16, 2023.

In a related development, the Official Committee of Unsecured Creditors of FTX expressed its support for the proposed settlement and the amended Plan Term Sheet. The Plan Term Sheet represents a compromise between various parties, including the Committee, the Debtors, the ad hoc customer committee, and other representatives. It addresses a range of issues that aim to balance the rights of customer and non-customer creditors across the U.S. and foreign debtors.

The Committee believes that the amended Plan Term Sheet will expedite the Chapter 11 cases and the timeline for creditor and customer recoveries, although they acknowledge that significant work remains to be done. They remain committed to safeguarding the interests of customers and creditors throughout this process.

FTX Debtors, in their official announcement on October 16, 2023, detailed their proposed settlement and amended Plan of Reorganization. The settlement, known as the "Customer Shortfall Settlement," is expected to resolve customer property disputes and pave the way for the Amended Plan, to be filed by December 16, 2023. If approved, this settlement will bring resolution to the customer property litigation filed against FTX Debtors and expedite the confirmation of the Amended Plan in the second quarter of 2024.

The Customer Shortfall Settlement addresses the assertion that customers of FTX.com and FTX US have property interests in certain assets, rather than an unsecured claim. It provides customers with an unsecured claim that has an equitable priority to certain segregated property.

The Amended Plan divides FTX Debtors' assets into three pools and provides Shortfall Claims for customers of FTX.com and FTX US. Customers are estimated to receive over 90% of distributable value worldwide if the Amended Plan is approved. However, it's important to note that full payment may not be guaranteed for all customers.

The proposed settlement also includes an opportunity for eligible customers to resolve preference exposure related to their claims. The FTX Debtors will offer eligible customers the option to reduce their claim by an amount specified in the Amended Plan ballot. This preference settlement offer is subject to approval by the Bankruptcy Court.

Customers and creditors can access additional information related to the court proceedings and the proposed settlement on the U.S. Bankruptcy Court's website.