The FTX reorganization proposal has been the subject of significant objections from the U.S. Trustee and a group of creditors.
The FTX reorganization plan still faces legal challenges that may affect its implementation, despite the fact that it received wide support from the creditor body, with over 95% of the votes in its favor.
Andrew R. Vara, the U.S. Trustee who is in charge of the case, enumerated the ten most significant objections to the plan. The majority of Vara’s objections pertain to three primary concerns: the failure to exclude what has been claimed as unneeded expenses related to a data breach by one of the estate service providers, the disparate treatment of same-class creditors based on their size, and the extremely broad legal releases that were granted to the majority of bankruptcy officials.
Vara criticizes the extremely exorbitant immunities that estate professionals possess, which greatly exceed the protection typically provided by the relevant statutes. Additionally, he was critical of the FTX reorganization plan, which allowed for the reimbursement of expenses associated with the breach. He maintained that the estate should not be responsible for such expenses.
In addition to Vara, Sunil Kavuri, who represents the largest group of FTX creditors, and other representatives of the retail consumers of the now-defunct platform have also submitted complaints.
Kavuri has been a long-standing advocate for in-kind reimbursements, which involve the return of Bitcoin to creditors who have lost it, rather than the monetary equivalent of the current price. This could potentially circumvent tax liabilities associated with creditors’ losses.
The reorganization plan was on track to achieve its original projection of full payment and interest to all creditors, with the exception of governmental creditors, and the FTX CEO, John J. Ray III, was optimistic about its prospects, despite the challenges it faced.
The case remains unresolved, with an independent examiner, Robert Cleary, also assigned to investigate the bankruptcy proceedings following a ruling that reversed an initial denial of his appointment.
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