FTX: Inside the Restructuring - [Business Breakdowns, EP.153]

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Mar 11, 2024

Join Erin Broderick, Head of U.S. Cross-Border Restructuring & Insolvency at Eversheds Sutherland, as she delves into the complexities behind FTX's bankruptcy. With her expertise representing the Ad Hoc Committee of Non-U.S. customers, she unpacks the intricacies of Chapter 11 proceedings, including unique challenges for crypto exchanges. Erin discusses the issues surrounding customer claims, asset management during restructuring, and the importance of confidentiality. It's a fascinating look at navigating one of the biggest collapses in cryptocurrency history.

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INSIGHT

Chapter 11 vs. Chapter 7

Chapter 11 bankruptcy focuses on reorganization, allowing the existing management to retain control.
Chapter 7, conversely, involves liquidation and the appointment of a court-appointed trustee.

INSIGHT

FTX.com as Piggy Bank

FTX.com's customer funds were used across the enterprise, requiring consolidation of separate entities.
This consolidation ensures fair allocation of recovered value to customers.

INSIGHT

Customer Ownership vs. Creditor Status

Customers could argue ownership of assets, rather than creditor status, to potentially maximize recovery.
Proving ownership through tracing is complex; maximizing overall estate value benefits all customers.

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This is Matt Reustle. Today we are releasing a bonus episode of Breakdowns. While we typically love to cover businesses, this was an interesting opportunity to cover a special situation around a business. And in this case, the FTX bankruptcy.

I was joined by Erin Broderick, Head of U.S. Cross-Border Restructuring & Insolvency at Eversheds Sutherland. Erin represents the Ad Hoc Committee of Non-U.S. customers for FTX, giving her a front-row and hands-on seat to everything that's unfolded at FTX since they entered Chapter 11 in November of 2022. We cover the basics around bankruptcy proceedings, using FTX as a lens in comparison to other restructurings. Please enjoy this bankruptcy breakdown on FTX.

For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.

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Show Notes

(00:00:00) Welcome to Business Breakdowns

(00:03:31) First Question - Understanding Bankruptcy Proceedings

(00:04:15) The FTX Bankruptcy Case

(00:05:19) The Role of Chapter 11 and Chapter 7 in Bankruptcy

(00:05:52) The Challenges of Restructuring FTX

(00:08:18) The Role of Customers in the FTX Case

(00:12:16) Complexities of Tracing and Identifying Assets

(00:22:10) The Role of Secondary Hedge Funds

(00:27:05) The Issue of Dollarization of Claims

(00:32:35) The Process of Uncovering Assets

(00:36:39) Proposed Recovery Plan for FTX

(00:45:21) Upcoming Timeline For FTX To Exit Bankruptcy