FTX creditors challenge bankruptcy reorganization plan
FTX creditors challenge bankruptcy reorganization plan
Creditors argued that the plan's reimbursement structure could impose undue tax liabilities and mishandle the distribution of assets.
In a significant development within the cryptocurrency sector, creditors of the beleaguered FTX exchange have filed formal objections against the company's proposed bankruptcy reorganization plan. The creditors, led by Sunil Kavuri, argue that the plan does not adequately protect their interests and could result in substantial tax liabilities.
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According to details from Cointelegraph, the primary concern raised by the creditors is the proposed reimbursement method, which involves cash payments that would trigger taxable events. The creditors are advocating for reimbursements in-kind to avoid these tax implications. According to the objection, "Reimbursement of assets in-kind was listed as a possible remedy" to mitigate additional costs.
Furthermore, the creditors have challenged the release of funds to the FTX estate, citing that it contradicts Chapter 11 bankruptcy laws. They claim that the estate is attempting to distribute what they allege are "stolen assets."
This objection is the latest in a series of disputes between FTX’s bankruptcy estate, its former clients, and the creditors. Last year, FTX’s Official Committee of Unsecured Creditors (UCC) expressed disappointment with the initial reorganization plan, highlighting that the provisions outlined in the plan would unnecessarily complicate the bankruptcy process, increasing both time and costs.
The conflict intensified earlier this year when former FTX users and creditors demanded that reimbursements reflect current market prices rather than the significantly lower prices from 2022 when FTX collapsed.
In addition, FTX creditors have previously launched a lawsuit against Sullivan & Cromwell, the legal firm overseeing the bankruptcy, accusing them of complicity in FTX's fraudulent activities. An independent investigation, however, cleared the firm of any wrongdoing, maintaining that it was unaware of the fraudulent activities before FTX's collapse.
The resolution of these issues will have significant implications for the creditors and the future handling of similar cases in the cryptocurrency industry.
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