The FTX bankruptcy estate is seeking a court order to halt payouts to creditors residing in 49 countries with restrictive cryptocurrency regulations. This move aims to prevent potential legal and financial penalties for the estate, including personal liability for directors. The proposal outlines a "hold-and-review" process for claims from these jurisdictions, with a significant impact on Chinese creditors.
FTX Seeks Clarity on International Payouts
FTX's bankruptcy estate has filed a motion with the U.S. Bankruptcy Court for the District of Delaware, requesting authorization to freeze distributions to creditors in 49 "potentially restricted foreign jurisdictions." The estate cites concerns over ambiguous or restrictive cryptocurrency laws in these countries, which could lead to fines, penalties, and even criminal charges for those involved in the distribution process.
Key Jurisdictions Affected
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The 49 identified countries generally prohibit or restrict activities related to digital assets, including crypto trading or distributing crypto-related proceeds to residents.
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Notable countries on the list include China, Russia, Egypt, Iran, Saudi Arabia, and Ukraine.
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China accounts for approximately 82% of the value of affected claims among these restricted jurisdictions.
The "Hold-and-Review" Process
Instead of outright blocking payouts, the FTX Recovery Trust proposes a "hold-and-review" process. Upon court approval, a "Restricted Jurisdiction Notice" will be issued to creditors in affected areas. This notice will detail the reasons for the restricted status and provide creditors with at least 45 days to file objections.
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Objection Requirements: Creditors wishing to object must file a declaration acknowledging the authority of the U.S. court.
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Disputed Claims: Distributions on challenged claims will be put on hold during the objection period. If disputes are not resolved by the distribution record date, withheld funds and accumulated interest will revert to the estate.
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Forfeiture: Failure to submit an objection by the deadline will result in automatic forfeiture of the claim.
Creditor Concerns and Legal Challenges
Chinese FTX users, who represent a significant portion of the affected claims, are particularly vulnerable and are reportedly planning to seek legal counsel. Some have already voiced concerns, arguing that while mainland China restricts digital asset trading, residents are still permitted to hold cryptocurrencies, and claims are in U.S. dollars, which residents are legally allowed to keep offshore.
FTX creditor advocate Sunil Kavuri noted that the trustee has the final say, and in the worst-case scenario, claimants may need to sell or assign their claims to individuals in permitted jurisdictions. While some in the community have expressed outrage, others acknowledge the estate's reasonable stance given the legal uncertainties surrounding token distributions in bankruptcy.
Sources
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FTX asks court to cancel compensation for creditors in crypto-banned regions, CryptoRank.
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FTX Estate Wants Clarity If It Can Send Payouts to China, Cointelegraph.
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