The ongoing FTX reorganization process has encountered a significant challenge as the US Trustee overseeing the case has raised multiple objections to the crypto exchange’s amended reorganization plan. The Trustee, Andrew R. Vara, alongside a group of creditors, has filed complaints questioning the legality and fairness of the proposed plan.
Legal Exemptions Under Scrutiny
A key concern raised by the Trustee is the broad legal protections included in the reorganization plan for the estate’s administrators and advisers. Vara argues that these exemptions extend far beyond what is typically allowed under current statutes. He emphasized that such immunity is not warranted, particularly for professionals whose employment and compensation are subject to court oversight.
Unequal Treatment of Creditors
Another major issue identified by the Trustee is the disparity in treatment between creditors based on the size of their claims. Smaller creditors, with claims under $50,000, would receive a lower percentage of reimbursement compared to larger creditors. Vara highlighted this as unjustified, especially since the FTX estate reportedly has enough funds to pay all creditors at an equal rate.
Additional Concerns
The handling of costs related to a data breach at FTX’s service provider, Kroll, has also drawn criticism. The Trustee noted that estate professionals have requested millions of dollars in compensation for dealing with the breach, adding to the concerns about the plan’s fairness.
Creditor Group’s Objections
In addition to the US Trustee’s objections, a separate complaint was filed by a group of FTX creditors led by Sunil Kavuri. Kavuri, representing the largest group of FTX creditors, criticized the plan for not offering creditors the option to receive cryptocurrency, such as Bitcoin, instead of its equivalent value in US dollars. He argued that this option could prevent creditors from facing a taxable event, potentially improving their after-tax recovery.
The objections raised by both the US Trustee and the creditor group are likely to play a critical role in the court’s deliberations on the reorganization plan. As the case progresses, these legal challenges may influence the final outcome of the FTX bankruptcy proceedings.
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