FTX lawyers stressed that in-kind crypto payouts would clash with bankruptcy laws, but several creditors feel shortchanged by the proposed cash repayment plan.

FTX has received court approval to ask creditors whether they would prefer to receive their recovered funds in cash — under FTX‘s current liquidation plan — or in crypto at its current market value.

United States Bankruptcy Judge John Dorsey granted FTX the voting plan approval on June 25.

Several FTX creditors expressed dissatisfaction with the company’s latest liquidation plan, which was proposed in May. The plan suggested a 118% return for 98% of the creditors — those with claims under $50,000 — based on the U.S. dollar value of asset prices at the time of FTX’s bankruptcy filing in November 2022.

However, many FTX creditors are seeking a payout in crypto in-kind, which would factor in the crypto market’s 165% increase in total market cap since the exchange’s collapse.

To put some creditors’ reluctance to cash repayments in perspective, Bitcoin was trading at around $16,900 when FTX filed for bankruptcy but has since grown 265% to $61,770 at the time of publication.

The vote’s purpose is to receive feedback from the swathe of FTX customers who haven’t yet been involved in the repayment negotiations, FTX’s lawyer Andy Dietderich said in the court hearing.

However, FTX lawyers stressed that bankruptcy laws require the firm to value claims when FTX filed for Chapter 11, which is in line with its proposed plan.

Lawyers added the currently proposed cash repayment plan would be easier to implement as creditors wouldn’t be subject to capital gains tax.

Notably, even if creditors were to vote in favor of in-kind crypto repayments, this doesn’t mean the court is compelled to approve it.

Court documents show creditors will have until Aug. 16 to vote on the plan, and Dorsey will decide whether or not to approve it on Oct. 7.

FTX creditors have until Aug. 16 to cast their vote on the plan. Source: Kroll

FTX has recovered $11.4 billion in cash since filing for bankruptcy, but Dietderich expects that figure to rise to $12.6 billion by Oct. 31 when FTX’s Chapter 11 plan could take effect.

FTX was counted among the world’s largest cryptocurrency exchanges before it collapsed in November 2022.

Approximately $8 billion in funds were misappropriated from millions of customers. Much of these funds were misused by FTX’s trading firm Alameda Research, which triggered a liquidity crisis when customers sought to cash in their assets.

The defunct exchange was handed over to FTX’s current CEO, John Ray, a turnaround specialist who remains actively involved in the bankruptcy case.

Meanwhile, the firm’s former CEO Sam Bankman-Fried was convicted on several fraud and money laundering charges in November 2023 and was subsequently sentenced to 25 years behind bars in March.

Source: Cointelegraph