What to expect as FTX heads to bankruptcy court

Why it matters: Those SEC and DOJ investigations? They’ll probably take a while to play out. But bankruptcy court will deal out revelations sooner.

State of play: Everyone’s waiting for what’s known in the bankruptcy world as the “first day declaration,” a document that tells the sweeping story of all the events leading up to the filing.

• It’s meant to justify the bankruptcy itself, and the protection it bestows on debtors: It's usually an exhaustive play-by-play of all the things the company tried in order to avoid bankruptcy.
• With Sam Bankman-Fried (SBF) out, and now of dubious credibility, the declaration will probably be a sworn statement by the new CEO, John Ray III.

What they’re saying: “This will be the first time, in a formal court pleading under penalty of perjury, that they’ll have to explain why they’re seeking bankruptcy protection,” says Daniel Gwen, a business restructuring and cryptocurrency attorney at Ropes & Gray.

• The disclosure could explain why FTX.us was included in the bankruptcy filing — one day after SBF tweeted that users of the U.S. exchange were "fine" even as the rest of the international empire crumbled.

Another big reveal will be the list of the largest creditors. This could show external debt and inter-company loans — as well as, potentially, some of the largest institutional customers with assets tied up on the platform. (Usually, this is filed along with the actual petition for bankruptcy protection.)

• FTX checked a box in the petition saying it has at least 100,000 creditors. That box is the largest option available — so the number could actually be much higher.
• 💭 Our thought bubble, via Axios' Brady Dale: We'll be watching for whether the FTX team can protect the financial info of individual retail investors on its platform, and avoid gigantic privacy gaffes like those of fallen lender Celsius.

Looking further out, a comprehensive schedule of assets and liabilities is due within 14 days of the filing — though judges are known to provide extensions in complex cases, says Dan Besikof, partner in Loeb & Loeb's restructuring practice.

• Bankrupt companies also have to file monthly operating reports throughout the case, accounting for all the money that comes in and out.

“Bankruptcy is intended to be extremely transparent. It should shed a great deal of light on things rather quickly,” Besikof says.

The bottom line: What we may not learn just yet is how FTX intends to get out of bankruptcy.

• Ultimately, the purpose Chapter 11 protection is to provide companies a legal shield from creditors and litigation while they work out a plan to either reorganize, sell themselves, or liquidate.
• All the new revelations that'll hit the docket in the next few weeks will make for compelling reading, but the larger effort could take months or even years — and only then will creditors see any actual recovery on their claims.