FTX Trading Ltd. Proposes “Customer Shortfall Settlement” in Chapter 11 Case

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Good news for bankrupt FTX customers: FTX Trading Ltd. and its affiliated debtors have unveiled a landmark proposal, the “Customer Shortfall Settlement,” as part of their ongoing Chapter 11 proceedings. This innovative resolution is set to be integrated into an Amended Plan of Reorganization, slated for filing by December 16, 2023. Its approval would mark a significant stride towards concluding the proceedings by mid-2024. 

In an attempt to Ease Customer Property Disputes

The contentious customer property litigation, asserting that FTX.com and FTX US customers had direct property interests in specific assets, takes a decisive turn with the Customer Shortfall Settlement. This initiative offers customers an unsecured claim with an equitable priority to certain segregated or retrieved assets, effectively diffusing a complex legal impasse. It looks complex. Let’s simplify for you the dynamics of this hefty shortfall claims settlement. 

A Symphony of Negotiations

It all started with months of exhaustive, arms-length negotiations between the FTX Debtors, the Ad Hoc Committee of Non-U.S. Customers, the Official Committee of Unsecured Creditors, and class representatives, culminating in the Customer Shortfall Settlement. All parties have demonstrated their dedication to achieving a resolution that adds significant value to the case, a feat made possible in no small part by the guidance of the independent Board of Directors.

A Whooping $9B Amended Plan

As a result, the amended plan charts an innovative course by categorizing assets into three distinct pools based on their status at the inception of the Chapter 11 cases. Customers of FTX.com and FTX US will wield Shortfall Claims against General Pool, which have been conservatively estimated at roughly $8.9 billion and $166 million, respectively. Although unsecured, these claims enjoy an equitable priority, ensuring that customers stand to collectively receive over 90% of distributable value worldwide once the plan secures approval. However, as part of the plan, there will not be any FTX insiders, affiliates, or consumers who know about the mixing and misuse of customer deposits and corporate cash from the settlement.

How do the Preference Settlements work? 

Many are unaware that the customer Shortfall Settlement also underscores a mechanism for eligible customers to address preference exposure linked to their claims. However, it’s imperative to note that this offer is subject to approval by the Bankruptcy Court and may undergo adjustments by the FTX Debtors. Customers eligible for a preference settlement of less than $250,000 during the stipulated period can readily accept the settlement without any reduction in their claim or payment.