US trustee objects to FTX restructuring plan, says creditors should not bear costs for data breach

Documents recently filed in FTX's bankruptcy filing detail the objections of the U.S. trustee overseeing the case and a group of creditors to the bankrupt exchange's revised reorganization plan. The U.S. trustee listed ten flaws in the revised reorganization plan. FTX estate said a large percentage of creditors favor the reorganization plan. Most critically, trustee Andrew R. Vara pointed out that many people involved in the bankruptcy were granted broad legal exemptions, creditors were not paid equally by size, and the bankruptcy estate refused to share costs related to the data breach suffered by its service provider last year. "Estate professionals have sought millions of dollars in compensation in response to the Kroll data breach... The debtor's estate should not bear this cost. The fee examiner also agrees," Vara's filing reads. Vara also objected to the distribution plan's unequal treatment of creditors by size of the claim. "Here, customers in the 'convenience' tier (119%)...will receive a smaller percentage allocation than other customers (up to 143%) simply because their claims are smaller (generally $50,000 or less). On the effective date, the debtors will have enough cash to pay the convenience claimants the same percentage as other customer claims...The legal attributes of these customer claims are not significantly different." Vara also made some more technical legal arguments, but the most important may be his opposition to the "overly broad" exemptions provided by the plan to FTX estate managers and consultants, or forgiveness of any wrongdoing. "Such exemptions would far exceed the protections afforded to the employment and compensation of real estate professionals who are approved and supervised by the court in the case (under relevant regulations)," Vara wrote. (The Block) Previously, FTX Trading Ltd. and its affiliated debtors announced that the revised reorganization plan filed with the U.S. District Court for the District of Delaware has received preliminary support from all classes of creditors entitled to vote, including FTX U.S. and FTX Dotcom customer classes. FTX will file its final vote with the U.S. Bankruptcy Court for the District of Delaware before the confirmation hearing, which is scheduled to begin on October 7, 2024.