Andrew Vara, the US trustee, has raised concerns regarding the FTX restructuring plan, alleging that it violates the Bankruptcy Code.
Andrew Vara, the US administrator in the FTX bankruptcy case, has submitted an objection to the FTX restructuring plan, identifying ten deficiencies. His primary apprehensions are the unequal treatment of creditors and the desire of liquidators to impose the cost of the data breach with FTX service provider Kroll from last year on creditors.
The reorganization plan continues to be subject to legal challenges from certain creditors, and the opposition may exacerbate the situation. It is uncertain whether these new concerns will be sufficient to prevent court approval, despite the fact that FTX liquidators assert that the majority of creditors have approved the plan.
The court must not confirm the restructuring plan for ten separate and independent reasons, as stated in the US trustee filing. These include the plan’s violation of the Bankruptcy Code and numerous other regulations, which involves the discharge of debtors from all liabilities and the imposition of third-party non-consensual releases on numerous entities.
The trustee also raised concerns regarding the extensive immunity granted to FTX, the liquidators, and the events advisors under the plan, despite the fact that they are not fiduciaries in this instance. He asserts that the broad immunity violates current bankruptcy regulations and, more importantly, does not offer an exemption for egregious negligence and other violations.
He composed the following: “Such immunity would significantly surpass the safeguards that estate professionals, whose employment and compensation are subject to Court approval and supervision [under the relevant statutes], receive during the case.”
Vara is particularly interested in the court excluding any claims related to the Kroll data compromise from the exculpation provisions. He observed that creditors must have the ability to object to any professional fees associated with the violation, even if the court elects to confirm the plan with other provisions that permit immunity and release.
Additionally, Vara expressed his dissatisfaction with the treatment of creditors in the convenience class, which he deemed to be unjust. Despite the fact that their claims are lesser, this group of creditors will receive 119% of their funds, as opposed to the 143% of others. He contended that the estate possesses sufficient funds to compensate them in a manner that is consistent with that of other customers, and that there is no distinction between this group and other customers in terms of the law.
In addition, a distinct group of creditors has expressed its opposition to the bankruptcy plan, citing its own issues and grievances. Sunil Kavuri, an activist creditor, and two others have now lodged their own complaint on behalf of retail creditors.
Nevertheless, their primary concern is that the FTX bankruptcy estate did not offer a method for creditors to receive their recovery in kind. This implies that cryptocurrency should be considered as an alternative to US currencies for repayment purposes. One primary motivation for pursuing this is to prevent the repayment from being subject to taxation.
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