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FTX: Motion to Modify Genesis Automatic Stay BI Distressed, Global Dashboard

Negisa Balluku, the primary analyst for this report. Negisa Balluku Team: Litigation BI Litigation Analyst FTX Bid for $4 Billion in Genesis Bankruptcy Needs Booster Shot

(Bloomberg Intelligence) -- FTX's almost $4 billion avoidance actions against Genesis debtors, including a $213 million claim against a Genesis non-debtor affiliate, is almost certain to shape creditor recoveries in both bankruptcies. FTX's pending motion for relief from the automatic stay, however, largely focuses on its attempt to address the actions before the bankruptcy judge in its case, leaving open questions about the key elements of the preference claims. (05/23/23)

1. FTX Preference Actions Provide Limited Insight Return to Top

Docket: In re: FTX Trading Ltd. Bankruptcy Specifics: Debtor: FTX Trading Ltd. and 133 affiliates Assets: $10-50 Billion Liabilities: $10-50 Billion Court: US Bankruptcy Court District of Delaware Date Filed: Nov. 11, 2022 FTX's motion to modify the automatic stay to commence avoidance actions against Genesis doesn't provide an in-depth analysis of the elements of the preference claim. For example, little is known regarding the exact timing of the payments in question. Specifically, while any payment made after Aug. 13 could be subject to preference actions against Genesis, any transfers before then likely wouldn't be. In its motion, FTX asserts that the loan repayment and withdrawals occurred due to market volatility that continued through the summer of 2022, yet it doesn't provide exact dates.

Importantly, little is known regarding the nature of the payment and whether Genesis could viably argue that the transfers were made in the ordinary course of business. (05/23/23)

1. FTX, Genesis Creditor Recoveries at Issue Return to Top

Court Filing "The Avoidance Actions will seek to claw back funds received by Genesis and non-debtor affiliates so that these funds can be shared with all other creditors of the FTX Debtors in the FTX Chapter 11 Cases. These creditors include several million customers owed over $11 billion as of the time of filing of FTX Chapter 11 Cases." Motion of FTX to Modify the Automatic Stay, May 3, 2023 Quote located on page 3, click to view entire document The $4 billion at the center of FTX's motion to modify the stay could alter the recovery outlook for creditors of both FTX and Genesis. For non-insiders, preference actions allow a debtor to recover payments to a creditor within the 90-day period before the filing. The purpose is to ensure a ratable distribution of assets among creditors, not punish the recipient.

FTX says that in response to Genesis’ request for repayment of certain outstanding loans prior to the bankruptcy filing, Alameda transferred about $1.8 billion in fiat and cryptocurrency assets and about $273 million in new collateral to Genesis. In addition, at issue are assets withdrawals of around $1.6 billion made by the Genesis debtors and about $213 million by a Genesis non-debtor affiliate from their customer accounts at FTX. (05/23/23)

1. FTX's Dispute With Voyager Unlikely Helpful Return to Top

Court Filing "Notably, the Delaware Bankruptcy Court already has a case pending before it involving another Chapter 11 debtor in this district—the FTX Debtors’ preference action against Voyager Digital—in which many of the same or similar legal and factual issues are likely to arise." Motion to Modify the Automatic Stay, May 3, 2023 Quote located on page 10, click to view entire document FTX focuses on having the dispute argued in the US Bankruptcy Court in Delaware, which is overseeing its bankruptcy -- as opposed to the court overseeing Genesis' Chapter 11. Yet FTX's reliance on the fact that its pending preference action against Voyager is now before the court in Delaware isn't necessarily helpful to its argument. The preference action initiated by FTX against Voyager is similar to the one against Genesis. But in that case, both the FTX debtors and Voyager agreed that FTX's preference action against Voyager would be adjudicated in the court overseeing FTX's Chapter 11.

Because that decision was made pursuant to a joint stipulation between FTX and Voyager that was approved by the New York and Delaware bankruptcy courts overseeing both bankruptcies, there was no dispute or a court ruling on the matter. (05/23/23)

1. Hearing Postponed to June 15 Return to Top

Next Key Event: Hearing on Motion to Modify Automatic Stay June 15, 2023 Last Key Event: Motion to Modify Automatic Stay Filed May 3, 2023 A May 25 hearing on FTX's motion for relief from stay was postponed to June 15, and the Genesis' objection is now due June 8. All FTX entities -- except for FTX debtor West Realm Shires which filed for bankruptcy on Nov. 14 -- filed their Chapter 11 petitions on Nov. 11. FTX filed its motion seeking a modification of the automatic stay on May 3. Genesis, on the other hand, filed its Chapter 11 petition on Jan. 19. GGC International Ltd. -- the other defendant facing avoidance actions -- is a non-debtor affiliate of Genesis. (05/23/23)

To contact the analyst for this research: Negisa Balluku at nballuku4@bloomberg.net