A group of FTX creditors led by Sunil Kavuri has objected to the reorganization plan filed by the defunct exchange’s bankruptcy managers.
According to a June 5 court filing, the creditors argued that the plan failed the best interest test. Justifying the objection, Sunil noted that it is unconfirmable as a matter of law as it includes releases not in the interest of the estate. He added that the plan also ignores property rights issues.
Notably, the creditors argued that FTX’s cash repayment would force a taxable event that could be avoided through in-kind repayment. As such, creditors would be forced to pay tax on declared gains upon the cash receipts. They wrote:
“Because the Debtors state that they will take the position that this ‘forced exchange’ is a taxable event, it will inflict additional hardships on customers through forced taxation that could be avoided by making an ‘in kind’ distribution.”
Kavuri made reference to the current lawsuit against the estate’s law firm, Sullivan & Cromwell, over its ties to the exchange prior to its collapse. He claimed that the plan included an exculpation clause “so they and no one involved [can be] sued for misconduct.”
The creditors further stated that FTX must update the disclosure statement for the Internal Revenue Service (IRS) settlement and include the examiner report. The objection follows a recent agreement to settle tax claims with the IRS.
The settlement plan will see the IRS receive a $200 million priority claim within 60 days after the approval. Additionally, they also receive another $685 million lower-priority claim paid after customers have been fully paid.
On May 7, FTX bankruptcy managers announced a reorganization plan that would see creditors gain full cash repayment. Per the plan, creditors with claims below $50,000 would be eligible for a 118% recovery within 60 days of the court approval.
Similarly, other non-governmental creditors would also receive their total claims with up to 9% interest as compensation.
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