FTX Creditors Challenge Bankruptcy Plan Over Property Rights and Tax Concerns

  • Creditors of the bankrupt cryptocurrency exchange FTX are vigorously contesting the platform’s proposed reorganization plan.
  • The creditors argue that the plan does not satisfy crucial requirements of the Bankruptcy Code, particularly concerning property rights and debtor liquidation analysis.
  • FTX creditor activist Sunil Kavuri has highlighted that the reorganization plan fails the best interest test and contains inconsistencies.

FTX creditors file objections against the proposed reorganization plan, citing significant flaws and inconsistencies.

FTX Creditors Challenge Bankruptcy Plan

On June 6, creditors Ahmed Abd El-Razek, Pat Rabbitte, Noia Capital, and Sunil Kavuri lodged a formal objection in the U.S. Bankruptcy Court for the District of Delaware, a month after FTX put forth its reorganization proposal. The exchange, which collapsed in 2022, had unveiled a plan on May 7 suggesting sufficient funds to close its bankruptcy process and repay its customers.

FTX disclosed that it had reclaimed more than $16 billion through asset sales and fund consolidation across various entities, far exceeding the approximately $11 billion lost by customers when the exchange went under. The proposed plan intends to repay 98% of creditors with claims below $50,000 within 60 days of approval, promising around 118% of their recognized claims.

Nevertheless, some prominent creditors like Kavuri voiced their disapproval, despite positive reactions from the broader crypto community.

Discussions on In Kind Distributions

Creditors pushing back on the proposed terms are advocating for repayments to be made ‘in kind’ to prevent additional tax burdens on the recipients. Kavuri, among the dissenters, asserted that in-kind distributions could significantly alleviate tax implications compared to cash payments.

“It is painfully apparent that the Debtors’ proposed plan will inflict additional hardships on customers through forced taxation that could be avoided by making an ‘in kind’ distribution. If distributions were made in kind, customers might circumvent a taxable event altogether,” emphasized the objectors.

They further stressed that an agreement with another cryptocurrency exchange could facilitate the in-kind distributions, thus averting complications should FTX attempt to manage this independently.

Additionally, the creditors called the proposed plan “unconfirmable as a matter of law,” highlighting that it includes releases unfavorable to the estate and lacks clarity in its terms and statements.


The FTX bankruptcy case continues to develop with creditors challenging the proposed reorganization plan on various legal and operational fronts. The future of creditor repayments remains uncertain as the arguments presented could reshape the final settlement terms. Stakeholders are closely monitoring these proceedings, which could set significant precedents for future cryptocurrency bankruptcy cases.

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Gideon Wolf
Gideon Wolfhttps://en.coinotag.com/
GideonWolff is a 27-year-old technical analyst and journalist with extensive experience in the cryptocurrency industry. With a focus on technical analysis and news reporting, GideonWolff provides valuable insights on market trends and potential opportunities for both investors and those interested in the world of cryptocurrency.

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