FTX Trading is expected to appear in Delaware bankruptcy court on Tuesday for a so-called “day one hearing.”
Such hearings are normally routine matters that give a company various powers to operate in bankruptcy in much the same way it did before the bankruptcy.
The FTX hearing includes an unusual addition: case review. Judge John Dorsey will consider consolidating the US bankruptcy in Wilmington with an interim joint liquidation in the Bahamas, where FTX incorporated in September 2021.
The stakes are high. Bankrupt cryptocurrency exchange owes its top 50 creditors more than $3 billion. The top two creditors are owed more than $200 million each. The document did not name anyone.
FTX Trading’s lawyers said former CEO Sam Bankman-Fried could support efforts to sabotage the U.S. bankruptcy by expanding the proceeding to the Bahamas:
“Mr. Bankman-Fried, the co-founder and controlling owner of All Debtors and FDM [Bahamas-based FTX Digital Markets]seems to support JPL’s efforts [joint provisional liquidators] to expand the scope of the FTX DM proceeding in the Bahamas, to undermine these Chapter 11 cases, and to move assets from debtors to accounts in the Bahamas under the control of the government of The Bahamas.”
The Securities Commission of the Bahamas said Nov. 17 that it had transferred all of FTX FDM’s digital assets to a commission-controlled digital wallet for safekeeping.
FTX Trading says the move violates bankruptcy law, which freezes or “backs” the assets of debtors unless a judge approves a transfer.
It is central to efforts to end chaos and to ensure that resources can be secured and organized into an orderly process…
“JPL’s nomination and acknowledgment of the Chapter 15 case are therefore in serious question. It appears that the automatic suspension was being flaunted, by none other than a government actor,” FTX Trading’s attorneys said in a court document.
FTX Digital Markets filed a Chapter 15 bankruptcy petition on November 15 in New York City. The filing seeks to give the Bahamian proceeding equal status under US bankruptcy law as a US proceeding.
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The Bahamian Argument
Three joint interim liquidators of Bahamas-based FTX Digital Markets argue that US-based FTX Trading lacked the authority to file for bankruptcy, saying Digital Markets should be liable.
“The entire FTX brand was eventually managed from one location – the Bahamas. Likewise, all key management personnel were located in the Bahamas,” joint interim liquidator Brian Simms said in a court filing.
Simms said that no one but himself could authorize a bankruptcy filing: “I reject the validity of any purported attempt to bankrupt FTX affiliates to the extent that such filing required that any officer, director or management FTX Digital approved and authorized such action.”
FTX FACE BAHAMAS CRIMINAL INVESTIGATION AFTER COMPANY COLLAPSE, LOSES $1 BILLION IN CRYPTO
The US argument
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US-based FTX Trading said, “The filing of the Chapter 15 case without notice and in the SDNY [U.S. Bankruptcy Court for the Southern District of New York] it is a blatant attempt to avoid oversight by this court and to keep FTX DM isolated from the administration of the rest of the debtors, who make up the vast majority of the rest of the FTX group.”
He wants everything to be decided in Delaware, arguing that it doesn’t make sense to have two bankruptcy courts consider related issues.
“The basic principles of efficient judicial administration and effective coordination strongly support that all US proceedings relating to the FTX Group are conducted in a single US court: this Court.”
Simms said he doesn’t believe the review of the case in the Bahamas “will impact” the 102 franchisees that have filed for bankruptcy in the United States, nor does he want the Chapter 11 cases dismissed.
REGULATORY EXPERT: FTX “JURISDICTION SHOPPED” TO LOCATE IN A LAX REGULATORY ENVIRONMENT
FTX Trading wants Judge Dorsey to move the Chapter 15 case to Delaware so both can be administered jointly.
The company also wants any action in the Chapter 15 case suspended until the oversight issue is resolved.
“It is critical to efforts to end the chaos and to ensure that assets can be protected and ordered in an orderly process that all proceedings relating to debtors and their affiliates – including the Chapter 15 case – are conducted in an” sole seat. That seat is this Court, the United States Bankruptcy Court for the District of Delaware,” the attorneys said.
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Motions of the first day
Along with the change of venue request for the Chapter 15 case, Dorsey will hear day one motions, including requests to:
Jointly administer all 102 Chapter 11-affiliated cases
– Enable FTX to maintain a consolidated list of creditors
– Pay critical suppliers and authorize financial institutions to honor related payment requests
– Operate a cash management system and maintain existing forms of business
– Pay compensation and benefits