The reorganization of bankrupt cryptocurrency exchange FTX has encountered significant opposition from the U.S. trustee overseeing the case, Andrew Vara. Vara, along with a group of creditors, has formally objected to FTX’s latest reorganization plan, raising concerns over the plan’s legal provisions and its treatment of creditors.
FTX recently claimed that its revised reorganization plan had garnered substantial preliminary backing from its creditors, who are set to vote on the proposal. However, the U.S. trustee and several creditors are challenging this assertion, arguing that the plan is flawed and could have serious legal and financial implications.
A major point of contention in the trustee’s objections is the broad legal immunity the plan proposes for the estate’s administrators and advisers. Vara argues that these protections extend far beyond what is normally granted to professionals involved in bankruptcy cases. He emphasizes that such extensive legal shields could set a dangerous precedent and undermine the integrity of the bankruptcy process.
“The level of immunity provided in this plan goes well beyond the standard protections afforded to estate professionals,” Vara stated in his filing. He argued that the proposed legal exemptions would grant unwarranted protections, making it difficult to hold estate administrators accountable for their actions during the reorganization process.
Another key issue highlighted by Vara is the proposed unequal treatment of creditors based on the size of their claims. Under the current plan, smaller creditors, particularly those with claims under $50,000, would receive a smaller percentage of reimbursement compared to larger creditors. This discrepancy has drawn sharp criticism from the trustee, who contends that all creditors should be treated equally, especially given FTX’s sufficient cash reserves to cover the claims.
“There’s no legitimate basis for providing a lower recovery rate to smaller creditors,” Vara argued, questioning the fairness and logic behind the proposed distribution of funds. He suggested that the plan’s current structure could leave smaller creditors at a disadvantage, despite the availability of funds to treat all creditors equitably.
The handling of costs associated with a data breach at FTX’s service provider, Kroll, has also come under scrutiny. Vara’s filing points out that estate professionals have requested millions of dollars in compensation for their efforts in responding to the breach. He questioned whether these costs were being appropriately managed and whether the compensation requested was justified given the circumstances.
The objections filed by Vara and the group of creditors cast a shadow over FTX’s reorganization efforts, suggesting that the path forward may be more contentious than anticipated. As the case progresses, the court will need to address these concerns to ensure that the reorganization plan is fair, legal, and in the best interest of all creditors involved.
