Lawyers debate FTX's reorganization plan in bankruptcy court as creditors gear up to vote on next steps

Bankrupt FTX is gearing up for creditors to vote on a reorganization plan following the catastrophic fall of the crypto exchange almost two years ago.

During a bankruptcy hearing on Tuesday, lawyers for FTX and creditors debated a disclosure statement — a document that gives creditors more information to make a decision on the exchange's reorganization plan. Judge John Dorsey of the U.S. Bankruptcy Court of Delaware would have to approve of the plan and the disclosure statement, then creditors would vote on it before a confirmation hearing slated for later this year.

FTX revealed its reorganization plan in May and said it planned to give 98% of its creditors at least 118% of allowed claims. Creditors with allowed claims below $50,000 will be eligible for the 118% compensation upon court approval, according to the plan.

Some, including those representing FTX's largest creditor group, have opposed the plan and said the estate should pay out cryptocurrencies in-kind rather than the dollar value when the exchange filed for bankruptcy in November 2022. 

Andrew Dietderich, a lawyer representing FTX in the bankruptcy proceedings, said the plan had been "largely consensual."

"The pertinent fact today is the extraordinary absence of objections from any of the major stakeholders with whom we've engaged," Dietderich said during Tuesday's hearing.

Dietderich said they planned to solicit a vote and said one of the purposes of the vote was to get feedback from creditors. 

Meanwhile, David Adler, a lawyer representing three creditors, told the court the disclosure statement was "woefully inadequate." He also took issue with creditors getting back their funds in cash, not crypto.

"In the crypto cases that I've been involved with, there's generally a strong desire that the customers receive the crypto back in-kind, because if they don't get it back in-kind, it's a disposition event, or people believe that it may be a disposition event under U.S. tax law," Adler said.

 The lawyer also said creditors would get a significant tax bill if they were to receive their payout in cash, and not in-kind.

"I don't really understand what the logistical issues are, why that can't be done here, but it would save people who have potential tax bills enormous sums of money to get distribution in kind, rather than in cash," Adler said.

Judge Dorsey said that was a confirmation issue, meaning it could be brought up later. Hearings are next slated for July 17 and Aug. 15.