FTX’s plummeting into bankruptcy shows why the case is empty

(Bloomberg) – The collapse of Sam Bankman-Fried’s crypto empire has been chaotic, rapid and full of unknowns. The world should soon get 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 filed for court protection late last week without filing any of the usual court motions or explanatory documents seen in a major US insolvency case. Two days later, the docket of the main company court contains only a 23-page request to be filled in blank. In nearly every other multibillion-dollar Chapter 11 case in recent years, attorneys are quick to file a handful of routine requests designed to stabilize operations.

In a statement, the company’s new CEO – a man who helped oversee the breakup of Enron Corp. – told clients that the details of the bankruptcy would be on the court file “in the coming days”.

“It’s not like a normal case where you literally line up papers for weeks,” said Eric Snyder, chairman of the bankruptcy department at law firm Wilk Auslander, who is not part of the case. “Within 24 or 48 hours it was on the ropes and it was done.”

Free fall

Typical documents filed immediately after a bankruptcy include a detailed account of why the business has sought court protection, the type of legal aid it needs immediately, and a general outline of what the business is hoping for. accomplish in the event of bankruptcy.

A judge deals with these immediate requests in a company’s first hearing, which is usually held a few days after the Chapter 11 petition. Sunday afternoon in Delaware, FTX had not said when it would appear before the US Bankruptcy Judge John Dorsey, who was assigned to the case.

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

MF Global Inc., the Wall Street brokerage headed by former New Jersey governor and former Goldman Sachs Group Inc. co-chairman Jon Corzine, was one of the last major financial firms to file for bankruptcy without warning investors. . Misguided bets on European sovereign debt prompted ratings agencies to start downgrading MF Global in late October 2011, and within days the company filed for bankruptcy.

Even in the case of MF Global, the usual petitions were filed the same day the company went bankrupt. The demands included permission to continue to manage cash in the normal course of business and disclosure of material bank account information.

FTX’s filings move the company into a universe governed by strict procedural safeguards and an emphasis on transparency.

Were there “a lot of lawyers working this weekend to prepare these papers? Absolutely,” Snyder said. Advisors need to have an idea of ​​what FTX is worth and what, if any, businesses can be saved, and who its creditors are, all of whom need to be made aware of the proceedings.

This is no small task for a company like FTX: the company has operations both in the US and overseas and is somehow tied to Bankman-Fried’s trading house, Alameda Research. In initial filings, FTX estimated its assets and liabilities to be between $10 billion and $50 billion.

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

Certainly, plummeting bankruptcies can trigger rapid and dramatic resolutions in a crisis. When it plunged into Chapter 11 protection in 2008 with few plans moving forward, Lehman Brothers sold its core capital markets business to Barclays Plc for $1.75 billion just days later. the deposit. The deal transferred jobs and customers to a solvent company and helped stabilize the global economy.

Just a few weeks ago, FTX was on the hunt for assets itself. In September, the company won an auction to take over the assets of bankrupt crypto lender Voyager Digital Ltd. with an offer worth around $1.4 billion. Voyager said Friday it was reopening the bidding process.

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