FTX Recovery Trust Halts Payouts to 49 Jurisdictions Due to Local Regulations

The FTX Recovery Trust has announced a significant development in its bankruptcy proceedings, revealing plans to temporarily halt payouts to creditors in 49 jurisdictions. This decision is driven by local regulations in these regions that either prohibit cryptocurrency trading or the use of distribution agents, thereby complicating the distribution of funds. The trust has informed the Delaware bankruptcy court of this measure, which affects a substantial portion of the total claims, particularly in China.

The trust's filing with the court outlines a detailed framework for handling these disputed claims. Once the court approves the procedure, the trust will send a "Restricted Jurisdiction Notice" to all creditors in the affected countries. This notice will explain the reasons for the designation and set a deadline of at least 45 days for creditors to object. During this period, all distributions related to the challenged claims will be suspended. If the dispute remains unresolved by the distribution record date, the withheld amount and any accrued interest will revert to the estate.

Creditors who wish to object must submit a sworn statement accepting the jurisdiction of the US court. The trust will then seek a court ruling on the reasonableness of its determination of restricted jurisdiction. Failure to object within the specified deadline will result in an automatic forfeiture of the claim. The trust considers the service of notice complete once mail or email reaches the last address on file, deeming this effort "commercially reasonable."

According to the trust's advocate, the 49 jurisdictions represent about 5% of allowed claims but hold 82% of their dollar value, with China being the most significantly affected. The trust's strategy involves obtaining legal opinions on each jurisdiction, distributing funds where feasible, and formally disputing claims when residence in a blocked market is confirmed. Claims will remain disputed until the status of the potentially restricted foreign jurisdiction is resolved and the claim is either allowed or disallowed.

This move by the FTX Recovery Trust underscores the complexities involved in navigating international regulations and legal frameworks, particularly in regions with stringent cryptocurrency restrictions. The trust's approach aims to ensure compliance with local laws while protecting the interests of creditors and the estate. However, the temporary halt on payouts and the potential forfeiture of claims highlight the challenges faced by creditors in these jurisdictions, who may now face delays and legal battles to recover their funds.

For thousands of creditors in restricted regions, the risk is real: if local laws block payouts, and no one speaks up, their chance of recovery may be gone for good. The court will review the proposal on July 22. If approved, the Trust will move forward: sending notices, reviewing objections, and beginning the redistribution process. This new legal step adds another layer of delay for creditors, especially those outside the supported regions.