The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Securities Commission plans to seek Supreme Court approval to transfer some $426m worth of digital assets it is safeguarding into the care of the liquidators for FTX's Bahamian subsidiary.

Brian Simms KC, the Lennox Paton senior partner, in a January 12, 2024, affidavit supporting the Bahamian liquidators' bid for Supreme Court approval of the settlement with their US adversary, disclosed that the regulator is "content" to transfer the assets it secured in the aftermath of the crypto exchange's collapse to himself and his PricewaterhouseCoopers (PwC) colleagues.

This will enable the FTX Digital Markets trio to fulfill one part of their agreement with John Ray, head of the 134 FTX entities currently in Chapter 11 bankruptcy protection in Delaware, in that they would use “commercially reasonable efforts” to ensure the digital assets held by the Securities Commission are ultimately transferred to their US counterpart.

"Shortly after the winding-up petition [for FTX Digital Markets] was presented in this honourable court by the Securities Commission, the Securities Commission took control of a quantity of digital assets as a means of preventing unauthorised withdrawals by unknown persons," Mr Simms recalled.

"The [Delaware] bankruptcy court has already authorised a series of thorough procedures proposed by the debtors for monetisation of digital assets. Accordingly, as part of the compromises contained in the settlement agreement, FTX Digital Markets, acting by the joint official liquidators, has agreed to seek the return of the digital assets currently held by the Securities Commission and transfer them to the debtors.

"The joint official liquidators have liaised with the Securities Commission in connection with this term of the global settlement agreement and, as at the date of this affidavit, my understanding is that the Securities Commission of The Bahamas is content to transfer the digital assets to FTX Digital Markets to be dealt with on the terms of the global settlement agreement."

Mr Simms added that "the Securities Commission intends to seek an Order from" the Supreme Court that will grant permission to effect this transfer. The senior Lennox Paton partner also revealed details of how creditors will be compensated and recover their assets, including the creation of a $15m fund to satisfy the claims of FTX Digital Markets' non-customer creditors.

The latter group will include the likes of trade, government and other unsecured creditors. "The global settlement agreement provides for creditors proving in the FTX Digital Markets liquidation other than customers to be paid from a specific and segregated account that will be funded by a sum of $15m to be provided by the debtors [Mr Ray]," Mr Simms revealed.

"Presently the joint official liquidators consider that this amount should be sufficient to satisfy all the ordinary creditors of FTX Digital Markets. Another justification for the differential treatment of non-customers was the concern of the joint official liquidators that the debtors would be reluctant to provide any funding for non-customers at all or for FTX Digital Markets to pay a distribution to non-customers from assets in their hands.

"Such an outcome would have been very unfair and was not one to which the joint provisional liquidators could agree." However, Mr Simms said he and his PwC colleagues realised that without a compromise they faced "years of very hostile and expensive" litigation with Mr Ray that could consume all FTX Digital Markets' assets and leave all creditors - customers and non-customers - with nothing.

"Eventually, the debtors agreed to the creation of the FTX Digital Markets non-customer claims pool to be funded by $15m so that distributions could be made to all non-customer creditors proving in the FTX Digital Markets liquidation," Mr Simms said.

"Non-customer creditors will not be able to elect whether to claim against the debtors or in the FTX Digital Markets liquidation. They will only be able to claim in the FTX Digital Markets liquidation. Under this arrangement non-customer creditors are entitled to their pro rata share of such pool up to the amount of their admitted proof."

While voicing hope that joint claims hearings involving the Supreme Court and Delaware Bankruptcy Court will resolve any objections by Mr Ray to creditors claiming in the FTX Digital Markets liquidation, Mr Simms said "the safeguard is a pool of $75m provided by the debtors to assist in paying all disputed claims" in the Bahamian liquidation.

"Insofar as those claims exceed the $75m pool, there will be a dilution of the FTX Digital Markets estate and the amounts that the FTX Digital Markets customers will receive compared to those that claim through the Chapter 11 process," Mr Simms warned.

"Without the global settlement agreement there was an appreciable risk that FTX Digital Markets would have been left with scarce resources with which to make any distributions to those wishing to prove in The Bahamas, leaving customers with no option but to claim in the Bankruptcy Court in the US.

"Ordinary creditors would have had to prove against FTX Digital Markets in The Bahamas whose resources would have been heavily diminished." The 60,933 potential creditors of FTX Digital Markets must submit their claims by May 15, 2024, if they wish to recover their assets and receive a distribution.