U.S. Bankruptcy Court Revises FTX Liquidation Rules Allowing Cross-Border Claim Transfers for Restricted Jurisdictions

The U.S. Bankruptcy Court for the District of Delaware has revised restrictions imposed during the FTX liquidation process, allowing creditors in restricted jurisdictions to transfer claims across borders. The July 23 hearing, led by Chief Judge Karen B. Owens, amended a prior motion that barred transfers to certain regions, now enabling creditors to leverage cross-border claim transfers. This change, particularly beneficial to claimants in jurisdictions like Singapore and the UAE, aims to enhance liquidity in the creditor claim market [1].

The update follows prolonged delays caused by Know Your Customer (KYC) requirements and regulatory frameworks in restricted jurisdictions, including the Bahamas and China. While $290 million in approved claims remain unpaid due to compliance hurdles, some Bahamian claimants have now received verification under a separate legal process. Creditor representative Sunil Kavuri emphasized that the amendment represents a critical step for restricted creditors, stating, “This is an essential step for creditors in restricted jurisdictions seeking to recover losses without facing automatic confiscation” [1].

The revised “Restricted Jurisdiction Procedure” will determine eligibility for future payouts in the 49 restricted countries. FTX will seek legal opinions to assess whether distributions comply with local laws in these regions. This framework, while slowing immediate disbursements, mirrors processes used in prior crypto collapses like Mt. Gox and Celsius, where international claim resolution took years. The hearing also addressed unresolved disputes, such as a recent settlement between FTX’s Bahamas unit and Celsius Network over clawback claims, which could unlock frozen assets [1].

Market reactions remain cautiously optimistic, particularly in Asia and the Middle East, where creditors see potential for improved recovery flexibility. Analysis by Coincu notes that these regulatory shifts could invigorate asset recovery processes and stimulate trading interest among debt buyers. Enhanced cross-border claim transfer mechanisms may diversify liquidity channels for creditor claims, with broader implications for global market dynamics [1].

The Bahamas’ regulatory environment has introduced complexities for international creditors, with PricewaterhouseCoopers and Bahamian King’s Counsel Brian Simms managing the case under strict compliance protocols. Balancing regulatory adherence with equitable asset distribution remains a challenge, particularly for jurisdictions where KYC and anti-money laundering measures inadvertently delay recoveries for legitimate claimants. Upcoming court sessions on August 12 and September 11 will further clarify the scope of these restrictions and their long-term impact on the liquidation timeline [1].

The interplay between regulatory rigor and creditor access underscores the challenges of cross-border crypto bankruptcy proceedings. While stringent compliance measures aim to mitigate systemic risks, they have slowed recovery for claimants in restricted jurisdictions. The court’s decisions will not only shape individual claimant outcomes but also set precedents for future crypto bankruptcy cases in a rapidly evolving regulatory landscape [1].

Source: [1] [FTX Bahamas Claims Verified as US Court Weighs ...] [https://coinedition.com/ftx-bahamas-claims-verified-us-court-hearing-exclusions/]