1/ The FTX jurisdictional battle between the US and the Bahamas and what it means for us all explained by a hentai anime penguin in a suit in between making coffee at the @wassieEmporium.
Let’s start with a recap.
Let’s start with a recap.
2/ Most of the FTX Group (FTX Intl, FTX US, Alameda, FTX Ventures) have now filed for Ch 11 in the US.
When I first speculated that a Ch 11 filing might be on the way - people asked a very sensible question.
How the hell can FTX Intl file for Ch 11 when it’s not in the US?
When I first speculated that a Ch 11 filing might be on the way - people asked a very sensible question.
How the hell can FTX Intl file for Ch 11 when it’s not in the US?
3/ Now this can be easily addressed.
Almost anyone can file for a Ch 11 as long as you have “property in the US”. Almost ridiculously, literally setting up a bank account in the US and hiring a US lawyer is enough for the US to claim jurisdiction.
But that’s the easy part…
Almost anyone can file for a Ch 11 as long as you have “property in the US”. Almost ridiculously, literally setting up a bank account in the US and hiring a US lawyer is enough for the US to claim jurisdiction.
But that’s the easy part…
4/ Because an insolvency process means shit if other jurisdictions refuse to recognise it.
Let me illustrate this with an example. Say you have a company in the U.K. who does business in Germany and Hong Kong.
You go insolvent and hit the Chapter 11 button.
Let me illustrate this with an example. Say you have a company in the U.K. who does business in Germany and Hong Kong.
You go insolvent and hit the Chapter 11 button.
5/ US lawyers happily send you a retainer for 1300 USD/hour, informing you that you now have a temporary global moratorium (creditors can’t take your shit) for a few months.
But this is a US process. What if you have assets in Hong Kong or Germany and those jurisdictions…
But this is a US process. What if you have assets in Hong Kong or Germany and those jurisdictions…
6/ just refuse to recognise your US moratorium?
Your Ch 11 becomes a shitshow because you now have America telling Hong Kong or Germany to stay all creditor claims while they say “lol no”.
Your insolvency protection is worthless unless recognised by other jurisdictions.
Your Ch 11 becomes a shitshow because you now have America telling Hong Kong or Germany to stay all creditor claims while they say “lol no”.
Your insolvency protection is worthless unless recognised by other jurisdictions.
7/ Now recognition in cross border insolvency tends to be more international diplomacy than hard law.
As you must all have realised by now, being able to run big bankruptcies is very lucrative. “Exporting law” is a very real thing.
When the U.K. left the EU - it was a very…
As you must all have realised by now, being able to run big bankruptcies is very lucrative. “Exporting law” is a very real thing.
When the U.K. left the EU - it was a very…
8/ real concern that the U.K. would lose “market share” in running EU insolvencies!
Most countries have some sort of framework in place to recognise each other’s jurisdiction and power to “lead” cross border insolvencies - known as “main proceedings”.
Most countries have some sort of framework in place to recognise each other’s jurisdiction and power to “lead” cross border insolvencies - known as “main proceedings”.
9/ It normally looks like this, if a country recognises a “main proceeding” in a foreign country, it cooperates with the foreign country with decisions made in the main proceeding.
So if a country recognises the US Chapter 11 as a main proceeding, it helps enforce it. Anyone…
So if a country recognises the US Chapter 11 as a main proceeding, it helps enforce it. Anyone…
10/ who rocks up in a Hong Kong court for example looking to sue a company in a Chapter 11 will be told to kindly pls fuck off sir our American friends are running this show.
11/ Generally - the rule for who gets first dibs on running the show is where a company (or group) has its COMI - short for centre of main interests.
In non lawyer speak - where was the company based out of? Who were it’s creditors? Where are it’s assets?
In non lawyer speak - where was the company based out of? Who were it’s creditors? Where are it’s assets?
12/ Now we can run this analysis but it may not even matter because it looks like both the US and the Bahamas want to hold onto jurisdiction!
Let’s pause on the US and go into the Bahamas. The Bahamas entity is in provisional liquidation. It is a process similar in some ways…
Let’s pause on the US and go into the Bahamas. The Bahamas entity is in provisional liquidation. It is a process similar in some ways…
13/ to what is going on in the US. Crucially, it entered into provisional liquidation (PL) 1 day before the Ch 11 was filed. When a company enters into PL, court appointed professionals take over the company.
SBF’s lost all power over the Bahamas entity when it entered PL.
SBF’s lost all power over the Bahamas entity when it entered PL.
14/ But Ch 11 is a voluntary filing and SBF filed it a day later.
The provisional liquidators in the Bahamas (which is where FTX Intl had a lot of its processes) are now saying that SBF never had the authority to file the Ch 11 to the extent it affects FTX Intl.
The provisional liquidators in the Bahamas (which is where FTX Intl had a lot of its processes) are now saying that SBF never had the authority to file the Ch 11 to the extent it affects FTX Intl.
15/ They may well have a point.
In any case, we have exited the realms of hard law and entered into the murky waters of international relations.
Both the US and the Bahamas have very vested interests in retaining control. Bahamas wants to show they can clean their own house…
In any case, we have exited the realms of hard law and entered into the murky waters of international relations.
Both the US and the Bahamas have very vested interests in retaining control. Bahamas wants to show they can clean their own house…
16/ and avoid the international embarrassment of letting someone else clean up the mess in their backyard. The US on the other hand is likely very interested in driving process given SBF’s activities in the US (and they like running other people’s shit generally!)
17/ The most similar case I can think of is the Baha Mar matter - where there was a fight over whether a Bahamas resort should be restructured via a Bahamas or US process.
The US relented in that case but the circumstances are very different. That case concerned land in the…
The US relented in that case but the circumstances are very different. That case concerned land in the…
18/ Bahamas. This does not - it concerns a very international operations and creditor base.
I don’t see either jurisdiction relenting without a long face-saving exercise, especially after the public comments thrown around by both John Ray in his filings and the Bahamas side.
I don’t see either jurisdiction relenting without a long face-saving exercise, especially after the public comments thrown around by both John Ray in his filings and the Bahamas side.
19/ This cannot possibly be a good thing for creditors given it is additional time and resource being spent on what is ultimately a distraction.
But if the Bahamas does not cooperate with the US by releasing assets or if the US does not allow the Bahamas to carve out…
But if the Bahamas does not cooperate with the US by releasing assets or if the US does not allow the Bahamas to carve out…
20/ FTX Intl for its own administration… it sounds like we are going to have a tense stand-off.
21/ Ending this here because this hentai penguin in a suit needs to go make some coffee!
Not legal advice, not financial advice etc.
Will be at @wassieEmporium all day if anyone wants a coffee. You can have anything as long as it’s an iced latte.
Not legal advice, not financial advice etc.
Will be at @wassieEmporium all day if anyone wants a coffee. You can have anything as long as it’s an iced latte.
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