FTX’s Dubai Subsidiary Seeks Exclusion from U.S. Bankruptcy Proceedings

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ftx's dubai subsidiary seeks exclusion from u.s. bankruptcy proceedings
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The Dubai branch of bankrupt crypto exchange FTX has filed a motion seeking to be excluded from its parent company’s ongoing Chapter 11 bankruptcy proceedings in the United States.

FTX and over 100 affiliated companies, including its Dubai unit FTX Middle East DMCC, filed for Chapter 11 bankruptcy protection in November 2022 after the sudden collapse of the exchange.

FTX’s Dubai subsidiary was formed in February 2022 and was owned by the exchange’s European arm. However, the Dubai unit had not conducted any business operations prior to FTX’s bankruptcy filing.

Motion to Be Excluded

On August 3, 2023, FTX Middle East DMCC filed a motion in U.S. bankruptcy court seeking to be excluded from the Chapter 11 restructuring proceedings.

The motion argues that the Dubai subsidiary had no business activities or operations before FTX’s bankruptcy and thus has no prospects for revival as part of the reorganization.

FTX Middle East DMCC claims it “does not own any assets, has no operations, no employees and no creditors.” It was essentially a shell company with no business function.

Creditors and Clawback Claims

Excluding FTX’s Dubai subsidiary could limit the reach of any clawback actions seeking to recover potentially stolen funds from the exchange’s former executives.

FTX’s new management alleges that over $1 billion was misappropriated by ex-CEOs Sam Bankman-Fried, Gary Wang and others. The bankruptcy proceedings allow for clawback claims against these individuals.

However, excluding FTX Middle East DMCC from the proceedings could hinder efforts to recover funds on behalf of customers, creditors and investors.

FTX’s new management will likely argue that the Dubai subsidiary was not involved in any wrongdoing. But critics may claim the move protects ex-executives from liability.

Key Takeaways

In summary:

  • FTX Middle East DMCC had no business operations before FTX’s bankruptcy filing in November 2022.
  • The Dubai subsidiary is seeking exclusion from the Chapter 11 proceedings, arguing it has no prospects for operational revival.
  • Excluding the unit could limit the scope of clawback claims against ex-FTX executives, possibly hindering recovery of stolen funds.
  • FTX’s management will argue the subsidiary had no role in wrongdoing, while critics may claim the move protects individuals from liability.
  • A judge has yet to rule on the motion seeking FTX Middle East DMCC’s exclusion.
  • The complex case highlights the challenges of restructuring an empire of affiliated companies across multiple jurisdictions.
  • Efforts to recover funds and assign blame for FTX’s collapse will likely involve protracted legal disputes for months and years ahead.

In conclusion, FTX’s Dubai subsidiary’s motion seeking exclusion from the U.S. bankruptcy proceedings underscores the convoluted nature of the broader FTX collapse involving dozens of companies worldwide. The possible impact on clawback actions against former executives also raises questions about who may ultimately be held accountable for FTX’s demise and whether customers, creditors and investors can hope to recover significant funds. The legal battles are only just beginning.

Source: FTX’s Dubai Unit Seeks Exclusion From U.S. Liquidation Proceedings

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