FTX Seeks Court Approval for Creditor Claims in 49 Restricted Regions

Bankrupt cryptocurrency exchange FTX has petitioned a U.S. bankruptcy court to endorse a new procedure for handling creditor claims from 49 regions with stringent crypto restrictions, including mainland China. These areas are subject to either outright prohibitions or severe legal constraints on cryptocurrency activities, which complicates the claims process for affected users.

Although users from restricted jurisdictions account for only 5% of total allowed claims, Chinese users constitute 82% of this segment. Given China's strict ban on cryptocurrency trading since 2021, these users may be unable to receive funds unless local laws permit it. FTX has stated that it will only honor claims where legal counsel confirms that payouts are permissible under relevant national laws.

FTX has pledged to obtain legal opinions for each restricted jurisdiction to ascertain whether funds can be distributed legally. If it is determined that payments cannot be made under a region’s laws, those claims may be contested or formally disputed. Users who are unwilling or unable to transfer their claim to a permitted region may forfeit their right to any repayment.

In response, some affected users from China are beginning to explore legal avenues. A creditor named Will posted online that he had sought legal representation in New York and intends to challenge the proposed restrictions. He argued that while China prohibits trading, individuals are still allowed to hold cryptocurrencies, which he believes should safeguard their right to receive USD-based settlements.

Chinese claimants have also expressed concerns about the lack of international wire transfer support, questioning why FTX will not process payments even though mainland residents are permitted to hold U.S. dollars abroad. FTX has not publicly addressed this logistical issue in detail.

According to creditor Sunil, users in blocked regions could potentially transfer or sell their claims to others based in permitted jurisdictions. While this option may offer a way forward for some, it remains uncertain how many will pursue this route, especially with legal challenges now emerging.

FTX, the cryptocurrency exchange, has filed a motion with the court to approve its claims amid China's ongoing ban on cryptocurrencies. The company, founded by Sam Bankman-Fried, is seeking legal recognition for its assets and liabilities in the region. This move comes as China continues to enforce strict regulations on digital currencies, making it difficult for companies like FTX to operate within its borders. The court's decision will have significant implications for FTX's future operations in China and its ability to recover assets from the region. The company's legal team is expected to present arguments in support of the motion, highlighting the challenges posed by China's regulatory environment and the need for a fair and transparent resolution. The outcome of this case will be closely watched by industry observers and could set a precedent for other cryptocurrency exchanges facing similar challenges in China.