FTX bankruptcy proceedings stall because lawyers are faced with crypto chaos

The billion-dollar FTX bankruptcy process has stalled on the starting line, which reflects the darkness and disorder within the crypto platform before looking for protection against creditors last week before a US court.

According to court files, FTX did not make any so -called first day applications on the formal procedure on Monday. As a rule, companies quickly present such documents to describe the circumstances that have led to their bankruptcy and ask the court to approve emergency financing in order to pay employees and suppliers during the procedure.

The crypto exchange and dozens of their subsidiaries applied for insolvency protection from a court in Delaware on Friday, after FTX had declared that they could not meet customer withdrawal inquiries. The day before, the most important international stock exchange of FTX had less than 1 billion of USD of liquid funds compared to $ 9 billion in liabilities, the FT reported.

The Delaware Insolvency Court commissioned judge John Dorsey to monitor the case, but a usual first hearing for the examination of such applications still has to be scheduled.

"This takes place much more slowly and opaque than usual," said a restructuring consultant, who received calls from those seeking help. The lack of information and legal submissions was an obstacle to advising creditors, this person said.

ftx has announced that John Ray III will act as Chief Executive after the founder Sam Bankman-Fried resigned. Ray is an experienced restructuring manager who worked in supervisory positions in insolvencies from Residential Capital, Overseas Shipholding Group, Nortel Networks and Enron.

The company also appointed Stephen Neal, a lawyer from Silicon Valley, the chairman of the FTX board. But Neal later said that he had decided not to take over the position.

According to a person who is in contact with the company, FTX tries to quickly gain new directors with experience in bankruptcy cases who are responsible for the decision-making of the FTX stakeholders.

Despite a nominal board of three people, Bankman-Fried seemed to have had almost free hand in the company, said a person who was asked about becoming FTX director and described the governance within the company as "wild west".

This person also described the current liquidity of the company as "low", which makes it uncertain, as it will pay for the legal and administrative costs in bankruptcy.

Sullivan & Cromwell, the long -time legal advisor from FTX, advised the company on bankruptcy proceedings and worked with Ryne Miller, General Counsel von FTX, himself a former lawyer of Sullivan. Miller did not immediately answer a request for comment.

In this case,

Sullivan's main partner, Andrew Dietderich, is a restructuring lawyer who recently helped FTX to win an insolvency auction for Voyager's assets, another crypto exchange that went bankrupt this year after the collapse of the digital token Terra and Luna.

According to a person familiar with the matter, Jay Clayton, former chairman of the US stock exchange supervisory authority and now a consultant of Sullivan, also worked with FTX. Bankman-Fried is personally represented by the Paul law firm.

Restructuring consultant informed the FT that the court had the opportunity to appoint an independent "chapter 11 Trustee" that would replace Ray to manage FTX. Such trustees are usually appointed if judges believe that control over the business should be withdrawn from the company itself.

The trustee would then hire his own advisors to manage the case and displace lawyers and consultants who would otherwise be due for fees of several $ 10 million. Finding FTX for experienced directors is an attempt to show the court that the company is able to manage the process itself to maximize the claims for the creditors, said a person who was informed about the reasons for the step.

As soon as the case begins, the Office of the Us Trustee, the insolvency authority of the Ministry of Justice, will appoint a committee of unsecured believers, which will probably mostly come together from owners from FTX accounts. The FTX's bankruptcy request last week said that it had around 100,000 creditors and assets and liabilities of $ 10 to $ 50 billion.

"The whole thing looks super chaotic. First of all, there will be a lot of complaints about misconduct and a long process to find out which legal steps arise from this misconduct-think of MF Global, Enron and Worldcom," said Anthony Casey Casey at the University of Chicago and former company lawyer with reference to previous blockbuster bankruptcies. "Secondly, I imagine that a lot of time and energy will be used to localize assets and values ​​and undo transfers."

Another observer speculated that creditors could get some money back by complaining against Bankman-Fried or others.

"The real recovery here will come from the upcoming storm of legal disputes. There are billions of potential preference lawsuits, and SBF and his crew are probably sued in the Wazoo," said Adam Levitin, a crypto expert and legal professor in Georgetown, who works at Gordian Crypto Advisors that may be responsible for in the case.

Preferences complaints relate to payments that are made immediately before insolvency applications and can be reclaimed by creditors to satisfy their claims

Nevertheless, the information vacuum did not prevent some dealmaking activities going back in motion. At Cherokee Acquisition, a marketplace for trading bankruptcy claims, bidders already offer FTX account holders between 10 and 14 cents on the dollar.

"FTX seemed completely unprepared for bankruptcy, and the condition of the internal records looked chaotic," said Vladimir Jelisavcic, founder of Cherokee Acquisition. "I can imagine that large teams of lawyers and financial advisors have difficulty putting the data together to be ready for a hearing on the first day."

Additional reporting by James Fontanella-Khan in New York