FTX's free fall into bankruptcy explains why the case file was emptied

FTX’s free fall into bankruptcy explains why the case file was emptied

The collapse of Sam Bankman-Fried’s crypto empire was chaotic, fast, and filled with unknowns. The world must soon get some answers via a federal court in Delaware.

The collapse of Sam Bankman-Fried’s crypto empire was chaotic, fast, and filled with unknowns. The world must soon get some answers via a federal court in Delaware.

FTX is what is known in the industry as a “free fall” bankruptcy. More than 130 related companies sought judicial protection last weekend without filing any of the usual court filings or explanatory documents seen in a major US insolvency case. Two days later, the corporate court’s main docket contains just a 23-page fill-in petition. In nearly every other multibillion-dollar Chapter 11 case in recent years, attorneys quickly file a small set of routine requests designed to stabilize operations.

In a statement, he told the company’s new CEO — a man who helped oversee the dissolution of Enron Corp. – Clients that details related to the bankruptcy will appear on the court’s agenda “in the coming days.”

“It’s not like an ordinary filing where the papers are literally lined up for weeks,” said Eric Snyder, head of bankruptcy at law firm Wilke Oslander. “In 24 or 48 hours this was about to be over.”

free fall

Typical paperwork submitted in the immediate aftermath of bankruptcy includes a detailed account of why the company is seeking judicial protection, the type of legal assistance it needs immediately, and an outline of what the company hopes to achieve in the event of bankruptcy.

The judge deals with these immediate requests at the company’s first court hearing, which typically takes place within a few days of a Chapter 11 petition. As of Sunday afternoon in Delaware, FTX has not said when it will appear before US Bankruptcy Judge John Dorsey, who has been assigned the case. .

When FTX gets its first hearing, Dorsey is likely to ask many of the same questions that customers and creditors ask: Where are the company’s assets? What is the company’s goal of bankruptcy?

MF Global Inc. was One of the last major financial firms to file for bankruptcy without warning to investors, is a Wall Street brokerage and dealer run by the former New Jersey governor and former co-chair of Goldman Sachs Group Inc. John Corzine. False bets on European sovereign debt caused ratings companies to start downgrading MF Global at the end of October 2011, and within days the company declared bankruptcy.

Even in the case of MF Global, the customary applications were filed on the same day the company went bankrupt. The requests included permission to continue managing cash in the normal course of business and to disclose critical bank account information.

FTX files transform the enterprise into a world of strict procedural firewalls and an emphasis on transparency.

Was there “a lot of lawyers working this weekend to prepare these papers?” Snyder said. Advisers need to know the value of the FTX and what, if anything can be salvaged from the business, who its creditors are, and who all need to be informed of the proceedings.

It’s no small task for an organization like FTX: The company has US and international operations and is somehow intertwined with Alameda Research, Bankman-Fried’s trading house. In initial filings, FTX estimated that its assets and liabilities had declined in the range of $10 billion to $50 billion.

Adding to the complications, the company is the subject of multiple investigations, including a criminal investigation by authorities in the Bahamas. The US Securities and Exchange Commission is looking into potential violations of securities rules, and the Department of Justice is also involved.

To be sure, free-falling bankruptcies can lead to quick and exciting solutions when the crisis is in full swing. When indulging in Chapter 11 protection in 2008 with a small plan going forward, Lehman Brothers sold its core capital markets business to Barclays Plc for $1.75 billion just days after the filing. The deal transferred jobs and customers to a highly financially viable company and helped stabilize the global economy.

Just weeks ago, FTX was searching for the same assets. In September, the company won an auction to acquire the assets of bankrupt crypto lender Voyager Digital Ltd. With a bid of about $1.4 billion. Voyager said Friday it is reopening the auction process.

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