The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Plans to bring FTX out of bankruptcy protection in the US cannot be finalised without agreement with their Bahamian counterparts as “ongoing good faith negotiations” between the two sides continue.

John Ray, head of the 134 FTX entities presently in Chapter 11 protection under the Delaware Bankruptcy Court, at the weekend unveiled a reorganisation strategy to bring the crypto exchange out of bankruptcy that contains multiple footnotes showing key aspects are subject to agreement with the liquidators of its Bahamian subsidiary.

In particular, the documents filed with the Delaware court make clear that the “classification and treatment of claims against FTX Bahamas PropCo are subject to ongoing discussions with the Bahamas joint official liquidators”.

FTX Bahamas PropCo is a reference to FTX Property Holdings, the entity used to acquire and hold an estimated $256m worth of Bahamian high-end real estate prior to the crypto exchange’s November 2022 implosion.

The implications are that Mr Ray needs to reach a settlement agreement with Brian Simms KC, the Lennox Paton senior partner and attorney, and PricewaterhouseCoopers (PwC) accounting duo Kevin Cambridge and Peter Greaves, before he can conclude his Chapter 11 strategy and bring the crypto exchange out of bankruptcy protection.

The Chapter 11 plan documents filed by Mr Ray refer to an “FTX Digital Markets global settlement agreement”, meaning an agreement with the Bahamian liquidators of the crypto exchange’s local subsidiary on how claims will be handled and assets distributed to creditors by their respective estates, although no such deal has been formally announced.

“The debtors and FTX Digital Markets commenced mediation regarding all of their related issues, including among other things the debtors’ adversary proceeding and FTX Digital Markets’ automatic stay relief motion, and have sought consensual extensions of the time to respond to claims and counterclaims asserted in the adversary proceeding,” Mr Ray revealed in his Chapter 11 filings.

“The parties have engaged in ongoing good faith, arm’s length negotiations over a period of many months regarding the terms of a global settlement to resolve all disputes between them and support for the other party’s insolvency proceeding.”

FTX’s Bahamian liquidators recently revealed they “are in the advanced stages” of negotiating a “global settlement” with their US counterpart that will ensure equal treatment for their near-53,000 creditors.

The trio, in their third report to the Supreme Court, revealed that talks with Mr Ray were focusing on the creation of a “pooling mechanism” as the best process for returning assets to the crypto exchange’s victims.

Affirming their desire to avoid renewed battles with Mr Ray, which would further slash investor/creditor recoveries through the imposition of extra legal costs and delays, the trio said “pooling” represents the best solution given that the Bahamian and US liquidation estates’ respective assets and liabilities “are so commingled that it is difficult or impossible to unravel” or separate them.

The recently-upgraded official liquidators for FTX Digital Markets, the failed crypto exchange’s Bahamian subsidiary, said talks to resolve their differences and disputes with Mr Ray have been ongoing since September and they “hope to be in a position to recommend to the Supreme Court of The Bahamas that this global settlement is entered into”.

Both the Supreme Court and Delaware Bankruptcy Court will have to approve any deal, but the negotiations appear to represent the best hope of ending more than eight months of hostility between the two sides, which erupted into the open on March 19, 2023, when Mr Ray’s team launched legal action in a bid to effectively cut the Bahamian liquidators off from access to FTX assets.

The proposed deal will also “release” inter-company claims between FTX Digital Markets and Mr Ray’s Chapter 11 estate, meaning that the Bahamian liquidators’ previously-filed $9.151bn claim against the latter will not proceed and recover nothing via this route.

The Bahamian liquidators revealed: “The liquidators and debtors [Mr Ray and his team] are in the advanced stages of alignment in respect of a global settlement. The basis of the global settlement being discussed is that the parties agree to a plan that treats FTX Digital Markets customers no less favourably (when taken as a whole) than the class of FTX.com customers.

“This requires a mechanism through which assets can be notionally pooled and allocated between estates and claims determined. Based on the liquidators’ assessment, the assets and liabilities of the debtors [Chapter 11 estate] and the FTX Digital Markets estate are commingled that it is difficult or impossible to unravel.”

The Bahamian liquidators have thus far received 52,931 claims from purported creditors, investors and clients of FTX Digital Markets, and added that the proposed “pooling” resolution is the best option for both avoiding protracted litigation with Mr Ray and a lengthy process of determining who owns which assets.