FTX Moves to Exclude its Dubai Unit from Bankruptcy Proceedings as Creditors Express Discontent Over Restructuring Plan

Bankrupt crypto exchange FTX has taken legal action to exclude its Dubai division from its ongoing bankruptcy proceedings in the United States.

In the court documents filed on August 3, 2023, FTX claimed that its Dubai unit did not conduct any business in the United Arab Emirates (UAE) before the bankruptcy filing in November 2022 and, therefore, has “no reasonable likelihood of rehabilitating its operations.”

When the exchange filed for bankruptcy in the U.S., it initiated Chapter 11 cases for 102 associated entities worldwide, including FTX Dubai.

FTX Dubai was established in February 2022 and is owned by the exchange’s European arm. It holds a virtual asset service provider license from Dubai’s Virtual Assets Regulatory Authority (VARA) and currently has approximately $4.5 million in various accounts, with $4 million being restricted by VARA as security for the license.

FTX also argued that the Dubai unit is solvent and plans to undergo a voluntary liquidation process in accordance with UAE laws, which will allow for the timely distribution of positive cash balance after all liabilities are paid, and assets are liquidated.

The FTX team claimed that it is requesting a dismissal to protect debtors and pay pre-bankruptcy compensation to Dubai employees. They, however, noted that any court orders made during proceedings should still be upheld.

A hearing on this issue has been scheduled for August 23, 2023.

FTX Customers Express Disappointment Over FTX’s Draft Bankruptcy Plan

Meanwhile, FTX’s creditors have expressed disappointment with the exchange’s draft bankruptcy plan. According to their court filing on July 31, 2023, the Official Committee of Unsecured Creditors (UCC) claims that despite repeated requests and previous assurances, the FTX restructuring team did not engage in any calls or meetings to discuss the draft Chapter 11 plan.

FTX’s draft plan aims to categorize customer claims into classes and lays out a pathway for FTX to re-launch as an offshore exchange. However, the UCC is concerned that the plan fails to designate someone with relevant crypto experience to lead the rebooted FTX.

The creditors also warned that if its concerns remain unaddressed, they will present their own plan for FTX customers to vote on.

It appears that the FTX team is open to making changes to their plan to incorporate the suggestions put forth by the UCC. The creditors have taken to social media to share an update, stating that discussions to this effect will commence shortly.

The Debtors filed a template for a plan of reorganization last night. Business level negotiations between the Committee and the Debtors over the terms of the plan have not happened yet, but will start very soon.

— Official Committee of Unsecured Creditors of FTX (@FTX_Committee) August 1, 2023