The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Supreme Court will now hear the petition to put FTX’s Bahamian subsidiary into full liquidation on November 6, it has been disclosed, amid “substantial progress” in resolving the dispute with its US arm.

FTX Digital Markets’ Bahamian provisional liquidators, in an October 18 update to creditors and investors, revealed that the winding-up petition hearing was pushed back to allow talks to “play out” on renewed co-operation with John Ray, head of the crypto exchange’s 134 US entities presently in Chapter 11 bankruptcy protection.

Brian Simms KC, the Lennox Paton senior partner, and the PricewaterhouseCoopers (PwC) accounting duo of Kevin Cambridge and Peter Greaves, in their update and other court flings signalled there was fresh optimism that a prolonged legal battle over which jurisdiction has control of FTX’s fate - The Bahamas or Delaware - can be avoided.

Acknowledging that the original FTX Digital Markets winding-up petition had been scheduled for hearing before the Supreme Court on August 9, the Bahamian liquidation trio told creditors: “The return date for the winding-up petition has been rescheduled to November 6, 2023.”

Explaining the rationale for this near-three month delay, they added: “As you may be aware, since the second update, the joint provisional liquidators have been engaged in adversary proceedings initiated by the Chapter 11 debtors and formal mediation.

“Outside of those proceedings, the joint provisional liquidators have also engaged in constructive informal discussions relating to the co-operation between the FTX Digital Markets estate and the Chapter 11 debtors. The return date for the court hearing has been rescheduled to enable sufficient time for those discussions to play out.”

The “adversary proceeding” is the legal action initiated by Mr Ray in Delaware in a bid to cut-off FTX Digital Markets and the Bahamian liquidators from securing any of the crypto exchange’s assets for their respective winding-up estate. However, there is now the possibility that an expensive and lengthy legal battle, which would cost both sets of FTX creditors time and money, may be averted.

Documents filed with the Delaware federal bankruptcy court reveal that the dates for the next legal filings in that case have been pushed back from this month to November as “the parties have been engaging in continued discussions regarding a potential resolution of this adversary proceeding, which have made substantial progress, including during the week of October 2, 2023”.

“To facilitate those continuing discussions, including as necessary with the mediator [retired US judge Judith Fitzgerald] later this month, the parties have discussed and agreed upon a revised schedule for this adversary proceeding.”

The Bahamian liquidation trio also said the launch of a full claims process for FTX Digital Markets, including the details and time, is “subject to the outcome” of the talks with Mr Ray and his team. Thus far, some 45,878 individuals, 958 institutions and 86 trade creditors have submitted a collective 46,922 claims against FTX Digital Markets.

Yet it still has to be determined which assets and clients belong in which estate - the Bahamian liquidation, or the Chapter 11 proceedings in Delaware. Once that is worked out, it will then be necessary to decide which assets belong to creditors and which to the exchange.

Answering those questions was why the Bahamian trio, in their first Supreme Court report, had recommended extending FTX Digital Markets’ liquidation by a further six months to August 2023. That has now morphed into a near nine-month extension.

That extension, Mr Simms and Messrs Cambridge and Greaves argued, would maintain value and “optionality” in FTX Digital Markets’ licence, which would be terminated if placed into full liquidation. And an extension would also allow them to “develop options to maximise returns to creditors via a platform reorganisation, which could include restarting the international platform in some format.

“The joint provisional liquidators are co-operating with the Chapter 11 debtors in this regard, but it is thought likely that it will take three to four months to agree a plan. That will then take time to implement.”

Lasting co-operation has proven elusive to-date, but the trio wrote at the time: “Ordinarily, it might be expected that a provisional liquidation outcome would be concluded within six months of a petition date.

“However, given the complexity of the case and the need to review and implement the matters outlined above, in addition to the value and volume of the likely creditor claims, the joint provisional liquidators’ recommendation to the Supreme Court is an extension of the provisional liquidation for a further six months in order to be able to determine and progress key matters.”