FTX Seeks Court Approval for Handling Claims from Restricted Regions

FTX, the bankrupt cryptocurrency exchange, has filed a motion with a U.S. bankruptcy court seeking approval to implement a specialized process for handling creditor claims from nearly 50 regions where digital asset activity is restricted or banned. This proposal aims to address the complexities arising from China’s ongoing ban on crypto transactions, which could complicate or even invalidate claims submitted by residents of these regions.

Under the proposed plan, users in these restricted jurisdictions would need to provide confirmation from legal experts that local laws permit such payouts. Without this assurance, FTX could formally challenge or reject their claims. Those who choose to remain in banned jurisdictions may face the prospect of being completely excluded from any recovery. This move is part of FTX’s efforts to navigate international regulatory conflicts as it distributes billions back to former customers.

The majority of claims from these restricted regions come from mainland China, where crypto holdings may be legally recognized as property but are not tradable under national law. This creates a murky path forward for Chinese claimants, who are now faced with additional hurdles, legal expenses, and uncertainty over whether they will ever receive the funds they are owed. Some Chinese creditors have already initiated legal consultations in New York to oppose FTX’s approach, questioning why international transfers in USD are being blocked if crypto ownership is still legal in China.

FTX-affiliated community members have suggested that selling or transferring claims to a third party in a permitted jurisdiction may be the only alternative for users caught in legal limbo. This introduces further legal and ethical considerations, as users may need to explore workarounds to preserve their claims. Once the court approves the plan, the FTX Recovery Trust will begin issuing “Restricted Jurisdiction Notices” to each affected user, providing a minimum 45-day window for users to object or demonstrate compliance with local laws.

To preserve their claim, users must either submit a legal opinion confirming that receiving a distribution would not breach their local regulations, or agree to accept the jurisdiction of the U.S. Bankruptcy Court. Failure to respond within the timeframe may result in the automatic forfeiture of the claim, with any associated funds and interest reverting back to the estate. This mechanism is designed to protect the estate from distributing funds in violation of foreign laws, which could result in regulatory or legal consequences.

During the objection period, all scheduled distributions to users from restricted jurisdictions will remain suspended. A court hearing on the matter is expected later in July 2025. Until then, the claims from these jurisdictions remain in limbo. The upcoming hearing could prove pivotal for thousands of affected claimants and may set a precedent for how global crypto bankruptcies are handled in future cross-border cases. While FTX has already executed two major distribution rounds, including a $5 billion payout in May 2025, this new legal motion indicates that the path to full recovery may remain blocked for a portion of international users unless the court provides clear authorization.