FTX won't compensate for the debt? What does it mean to receive an Impaired Claim email? Is there a chance for FTT to be compensated?

Some FTX users have received "unsettling" emails from the bankruptcy processing company Kroll in the United States, stating that debtors have decided that users holding Impaired Claims will not receive any compensation distribution.

FTX Notifies Impaired Claim Holders: No Compensation?

You have received this email in connection with the Joint Chapter 11 Reorganization Plan of FTX Trading Ltd. and its Debtors (the "Plan") which may be modified, amended, or supplemented from time to time. The Debtors have determined that your claim is deemed impaired and will receive no distribution under the Plan, therefore considered to reject the Plan and have no voting rights. You have the option to opt into a third-party release. Please find the information needed to opt into the third-party release through Kroll's online portal by entering your unique Opt-In ID at the following link: https://restructuring.ra.kroll.com/FTX/EBallot-Home. Please note that Kroll's electronic voting portal is expected to be available starting July 10, 2024.

What is an Impaired Claim? How does it affect creditors?

In bankruptcy proceedings, an Impaired Claim refers to creditors who will not receive full repayment of their debts according to the original contract terms in the bankruptcy plan. This means the creditor's claim will undergo certain modifications or reductions, such as delayed payments, reduced principal or interest, or other similar adjustments.

Creditors with Impaired Claims typically need to vote on the plan before it is approved by the bankruptcy court. According to Kroll's schedule, the voting record date is 6/25, ending on 8/16.

Specifically, situations of Impaired Claim may include:

1. Reduced Principal: Creditors will receive an amount lower than the original loan amount.
2. Extended Repayment Period: Repayment period is extended, meaning creditors will receive payments over a longer period.
3. Reduced Interest: Debt will be repaid at a lower interest rate.
4. Changes to Other Contract Terms: Such as altering payment frequencies or canceling certain payment obligations.

These changes are often made to assist the bankrupt company in restructuring its financial situation to continue operations to some extent or repay a portion of the debt. Creditors in such a situation need to decide whether to accept the new repayment conditions or take other legal actions.

FTX Creditors are divided into Impaired Claim / Unimpaired Claim

As illustrated below, Unimpaired Claim refers to creditors who will not be affected by the bankruptcy plan, do not need to vote, and are deemed to accept the plan. However, Impaired Claim creditors are categorized into "voting rights," "no voting rights, deemed to reject the plan," and "no voting rights, deemed to accept the plan."

FTX creditors who received this notice fall under the "no voting rights, deemed to reject the plan" category of Impaired Claim creditors, with categories 9, 11, 13, 14, 15, 16, 17, 18.

• 9 General Unsecured Claims

• 11 Intercompany Claims

• 13 Section 510(b) Preferred Stock Claims

• 14 Section 510(b) Other Equity Claims

• 15 Equal Subordinated Claims

• 16 Other Equity Interests

• 17 FTT Claims and Interests

• 18 Micro Claims

If your Claim is Impaired, what should you do? Kroll: Some may apply to the Bahamas

Ordinary users who received this Impaired Claim notice are more likely to have received it due to specific assets in their accounts. For example, holding Other Equity Interests under category 16, or holding FTT Claims and Interests under category 17, or holding Micro Claims under category 18 of nano-scale assets.

For these creditors, Kroll recommends opting for a Voluntary Release by Holders of Claims; holders of category 18 Micro Claims may be eligible for compensation through FTX Digital Markets Ltd. in the Bahamas and can submit proof of debt by August 16, 2024, through the FTX DM website at https://digitalmarketsclaim.pwc.com.

Conclusion: Not too worried? Just part of the assets

Kroll stated that if you have any questions about the restructuring plan, you can contact Kroll via email at [email protected] with "In re: FTX – Solicitation Inquiry" in the subject line.

Furthermore, it appears that users who received this letter have certain types of claims within their asset composition, such as equity and FTT, that are not compensated in the bankruptcy plan, but it does not mean the entire asset cannot be compensated.

FTX claims are entering the final process, choose to claim in the Bahamas or the United States before 8/16.