The US Bankruptcy Court in Delaware will hold a confirmation hearing for FTX's Chapter 11 reorganization plan on October 7, 2024, according to a court document. This hearing is crucial as it could pave the way for payouts to over 98% of FTX customers and unsecured creditors. 

The court proceedings don't end on October 7. According to reports, three additional hearings are scheduled for October 22, November 20, and December 12. These hearings will discuss consolidating multiple claimants into unified categories, ensuring a smoother payout process.

The key objective is to streamline the distribution of assets and prevent delays in disbursing funds to creditors. 

The Chapter 11 Plan: A Path to Payouts

FTX's proposed Chapter 11 plan aims to reorganize the collapsed crypto exchange and settle claims from its creditors. The payouts will reportedly be based on the dollar value of their cryptocurrency holdings as of November 11, 2022, when the exchange initially filed for bankruptcy.

FTX’s reorganization plan promises substantial returns to its creditors, with some receiving up to 118% of their claims. The total value of claims is estimated at $6.83 billion, which will be paid out in cash.

This plan has gained overwhelming support, with over 94% of creditors, particularly those from the FTX(.)com offshore platform, voting in favor of it, according to an Oct. 1 CoinDesk report. 

However, two creditor classes did not submit ballots during the voting process and are presumed to accept the plan. This means the vast majority of creditors have agreed to the terms, giving the reorganization plan a strong chance of being confirmed in court.

Stablecoins and Payout Concerns

One potential hurdle for FTX's reorganization is the use of stablecoins in the payout process. The U.S. Securities and Exchange Commission (SEC) has previously raised concerns about stablecoins being used for repayments in an Aug. 30 filing.

Should the SEC object, this could complicate the payout process and potentially delay creditor reimbursements.

FTX’s legal team, however, has stressed the need for cash payouts to avoid further delays and ensure the process adheres to bankruptcy regulations. They argue that paying creditors promptly is crucial to mitigating financial distress among affected customers.

The Surprise Shareholder Payout

In a surprising move, FTX has allocated $230 million from US government’s forfeiture funds to be paid out to preferred shareholders, per The WallStreet Journal. This agreement, finalized on August 28 and revealed on September 27, will see 18% of all forfeiture proceeds transferred to a special shareholder fund.

This plan surprised many creditors, who were reportedly unaware of the provision during the voting process. Traditionally, in Chapter 11 bankruptcy cases, shareholders are the last to be reimbursed, with creditors receiving priority. 

However, FTX’s attorneys have justified this decision as a means to avoid costly and time-consuming litigation over the forfeiture proceeds.

Some creditors have taken to social media to express dissatisfaction with the decision to allocate funds to shareholders. Many creditors feel that their life savings, tied up in the exchange, should be prioritized over shareholder reimbursements.

For some, the revised plan has caused anxiety and mental distress, as their assets remain frozen while shareholders stand to benefit from government forfeitures.

Also, the collapsed crypto exchange FTX has made last-minute changes to its payout plans, with only 10-25% of the money owed to creditors will be paid out, according to FTX creditor-activist Sunil Kavuri.