Bankrupt cryptocurrency exchange FTX seeks to exclude its Dubai-based unit from the ongoing wind-down proceedings in the U.S. Here’s an examination of the developments and the factors influencing this significant request.
FTX’s bankruptcy and the Dubai unit
FTX, which filed for bankruptcy in the U.S. in November 2021, initiated Chapter 11 cases for 102 associated entities across the globe, including FTX Dubai, established in February 2022 and owned by the firm’s European arm. Interestingly, FTX Dubai had not engaged in any business activities prior to the bankruptcy filing in the United Arab Emirates (UAE), making it a unique entity within the bankruptcy process.
The bankrupt estate contends that FTX Dubai “has no reasonable likelihood of rehabilitating its operations” and asserts that the unit is balance sheet solvent. Therefore, it has sought the dismissal of the Dubai unit from the bankruptcy proceedings.
Reasons for excluding FTX Dubai
The filings highlight several compelling reasons for the requested exclusion. Firstly, FTX Dubai’s solvency means that “a solvent voluntary liquidation procedure in accordance with the laws of the United Arab Emirates would allow a timely distribution of the positive cash balance after payment of all outstanding liabilities and liquidation of all assets.”
Secondly, lawyers argue that the dismissal is “necessary” to protect the debtors, allowing for the authorization of payments like pre-bankruptcy wages, benefits, and other compensation to the Dubai employees.
The legal perspective and future plans
According to the filings, any court orders relating to FTX Dubai issued while it was part of the proceedings should still stand, but the exclusion is viewed as crucial for the next steps in the bankruptcy process.
A hearing on the request is scheduled for August 23, making it a vital date for both the company and its creditors. The outcome of this request will significantly impact FTX’s ongoing bankruptcy proceedings and may provide insight into how the company plans to handle its other international entities.
In addition to the Dubai unit’s situation, FTX’s broader plan to relaunch the exchange and work towards a consensual plan was confirmed by John J. Ray III, the Chief Executive Officer and Chief Restructuring Officer of the FTX Debtors. Ray’s indication of working through matters in Q3 2023 and filing an amended plan in Q4 adds further intrigue to FTX’s restructuring strategy. A notable proposal in the re-organization plan is to turn international customers into exchange owners.
FTX’s request to exclude its Dubai unit from U.S. bankruptcy proceedings represents a critical juncture in the complex wind-down of the exchange. The reasoning behind the request and the company’s broader restructuring plans illustrate the multifaceted nature of managing bankruptcy across international jurisdictions. The hearing on August 23 will be a defining moment in this ongoing legal saga, potentially setting precedents for other international firms navigating bankruptcy challenges.