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(Kitco News) -
FTX has filed a new motion in bankruptcy court to exclude its Dubai unit from the company’s restructuring proceedings in the United States.
In an Aug. 2 filing with the Delaware bankruptcy court, FTX argued that its Dubai unit didn’t conduct any business before its parent company, FTX Europe AG, filed for bankruptcy.
“Prior to the Petition Date, FTX Dubai was established on February 11, 2022, under the laws of the United Arab Emirates to operate a crypto exchange,” they wrote. “On July 12, 2022, FTX Dubai was granted a virtual asset service provider license (the “License”) from Dubai’s Virtual Assets Regulatory Authority (“VARA”). Notwithstanding the grant of the License, FTX Dubai did not offer any crypto-related services to investors in the United Arab Emirates or operate a crypto exchange prior to the Petition Date.”
The license was suspended by VARA on November 10, 2022, one day before FTX and all of its subsidiaries, along with sister hedge fund Alameda Research, filed for bankruptcy, and the Dubai unit’s license expired on July 12, 2023.
“Given the absence of any historical business or resources to commence any business in the future, FTX Dubai has no reasonable likelihood of rehabilitating its operations,” they wrote. “Additionally, FTX Dubai is balance sheet solvent. Therefore, the Debtors believe that a solvent voluntary liquidation procedure in accordance with the laws of the United Arab Emirates would allow a timely distribution of the positive cash balance after payment of all outstanding liabilities and liquidation of all assets.”
The lawyers for FTX argue that dismissing the Chapter 11 case of FTX Dubai would not impact any claims that have already been made against it “and will not prejudice any creditor’s ability to pursue such claims directly against FTX Dubai in its local liquidation proceeding.”
According to court filings, FTX Dubai has assets totalling approximately $4.5 million held in several accounts, of which $4 million was restricted as security for the license as per VARA requirements. On July 25, VARA confirmed to the management of FTX Dubai that the restricted cash would be released during the liquidation of FTX Dubai in accordance with the laws of the United Arab Emirates (UAE).
If the motion is approved, FTX Dubai is expected to enter into an agreement with the appointed UAE liquidator to conduct and orderly and efficient liquidation.
The first hearing on the exclusion of FTX Dubai will be held on Aug. 23.
On July 31, FTX filed a draft bankruptcy reorganization plan that suggested various ways to settle what the company refers to as an “exceptionally large and complicated collection of claims” and also included “a restart of an offshore exchange” among the possibilities.
FTX plans to divide the claims into three main recovery pools: Those of FTX.com customers, FTX US customers, and assets that do not fit into the other two categories. Users that held NFTs on FTX exchanges will have their own separate classification, as the company intends to return them to their rightful owners unless the tokens were destroyed or lost.
The draft plan recognizes a special category of “shortfall” claims by FTX.com and FTX US against the third pool of assets, which are intended to compensate creditors for the alleged misappropriation of assets by former CEO Sam Bankman-Fried and his inner circle.
The company also intends to carry out the “extinguishment of FTT claims,” which implies that holders of the former exchange’s own tokens will not be compensated for them at all.
The plan concludes with a section outlining the company’s intention to ultimately liquidate the estates of FTX and pay distributions to customers and creditors in U.S. dollars, and that customers may be offered stakes in “a restart of an offshore exchange” if they so choose.
This means that if the FTX.com reboot were to happen, creditors could opt for a share of the equity, tokens and other interests in the relaunched exchange.
FTX filed for bankruptcy on Nov. 11, 2023. The founder and former CEO, Sam Bankman Fried, faces a criminal trial for his role in the implosion of his erstwhile crypto empire scheduled to begin on October 2, 2023.
