FTX Debtors Pivot: Revised Settlement Proposal Emerges Amid US Trustee Objection

In a recent court filing on Sunday, bankrupt cryptocurrency exchange FTX disclosed that it had revised its motion for settlement after facing objections from the US Trustee. 

Despite criticizing the US Department of Justice (DOJ) representatives for intervening in what they considered a routine settlement process safeguarded by two creditor committees, FTX debtors acknowledged the concerns raised and proposed revisions to address them.

FTX Seeks Efficient Resolution Of Small Estate Claims

According to the court filing, establishing omnibus settlement procedures in complex cases is a “routine, appropriate, and authorized” practice. 

Contrary to the US Trustee’s suggestion, such procedures are often permitted by courts, enabling the settlement of claims by category and granting relief similar to that sought by the FTX debtors. 

The proposed settlement procedures aim to facilitate quick, efficient, and cost-effective resolutions of significant volumes of Small Estate Claims, maximizing recovery for all creditors while minimizing the burden on the court.

The FTX debtors emphasized that the objections raised by the US Trustee were unfounded. They underscored the support received from both the Unsecured Creditors Committee (UCC) and the Ad Hoc Committee (AHC), who provided input and expressed their approval of the proposed Settlement Procedures. 

Notably, the revised procedures would ensure notice to all relevant parties, regardless of the size of the settlement. To address the concerns raised in the objection, the FTX debtors made several revisions to the Settlement Procedures. 

These revisions include reducing the maximum Settled Value for covered claims, incorporating the U.S. Trustee as a third Noticed Party, limiting the claims subject to the procedures, and committing to file monthly reports of executed settlements. 

Furthermore, the FTX debtors firmly believe that the objection should be overruled, and the motion should be granted. 

Additionally, to the revisions made, they have committed to filing monthly reports disclosing consummated settlements, offering increased transparency in these routine settlements. 

The revised Settlement Procedures explicitly exclude post-petition claims, claims against insiders or other affiliates, and claims against retained professionals of the debtors, both pre-and post-petition.

The objection’s concerns regarding claim valuation were dismissed by the FTX debtors, who stated that their proposal aligns with the endorsement of arms-length negotiations between parties when valuing Small Estate Claims. 

The FTX debtors emphasized that proposed settlement procedures may include prospective and unasserted litigation claims, with courts determining the reasonableness of the procedures governing such claims. 

They cited previous cases where settlement procedures encompassed existing and future claims, emphasizing the well-accepted practice in bankruptcy proceedings.

In conclusion, the FTX debtors reaffirmed their commitment to maximizing the recovery for their creditors and reiterated that compromises and settlements are favored in bankruptcy cases. 

The Revised Settlement Procedures, they argued, are not only appropriate given the complex nature of the Chapter 11 Cases but also beneficial to their estates. They anticipate that these procedures will assist in confirming and consummating a Chapter 11 plan while distributing maximum value to stakeholders.

It remains to be seen how the court will respond to the revised settlement proposal and the objections raised. The outcome will significantly impact the resolution of litigation claims and the overall progress of the FTX bankruptcy proceedings.

Featured image from iStock, chart from TradingView.com