FTX Liquidation Controversy: Chinese Users May Struggle to Get Compensation? Claims from 49 Restricted Countries Face Challenges

The liquidation process of the bankrupt exchange FTX has once again attracted attention. Creditor representative Sunil Kavuri revealed via tweet on July 4 that investors from 49 restricted jurisdictions may be excluded from the payout list due to local regulations. It is noteworthy that the vast majority of the value in these affected claims comes from China.

I. Debt claims from restricted countries face challenges

Sunil Kavuri stated that in 49 jurisdictions, 5% of the claims belong to claims made by "restricted countries," and of those, as much as 82% of the claim value comes from China.

The reason behind this is the local legal regulations: cryptocurrency trading is not allowed, and there can be no cryptocurrency distributors within the territory.

Therefore, the processing steps for FTX are as follows:

· FTX will seek legal advice;

· If legal opinion considers that distribution to "potentially restricted foreign jurisdictions" is permissible, FTX will execute;

· If a claimant is determined to be a resident of a "restricted foreign jurisdiction";

· The claim will be classified as a "disputed claim";

· FTX will file a formal objection;

· If the dispute is not resolved, the creditor will lose their distribution rights.

In other words, the FTX liquidation committee is seeking legal advice to determine whether to allocate funds to restricted areas. If the answer is negative, the relevant claims will be classified as disputes and may become void, and local users may also be unable to receive compensation.

Although the affected amount only accounts for 5% of the approved claims, 82% of it is concentrated in China. China has not fully opened up private cryptocurrency activities, and with limited fund distribution, it has become the biggest variable.

II. Notification and Procedure for FTX Trust Restoration

FTX informed the Delaware bankruptcy court that it will treat creditor claims from 49 foreign jurisdictions as disputed claims, as local rules prohibit cryptocurrency trading or the use of distribution agents.

According to a document shared by FTX creditor advocate Sunil Kavuri on July 2, the trust stated that it cannot disburse funds to customers in these markets until legal analysis confirms that the payments will not violate local laws.

The list includes countries from China and Nigeria to Andorra, Fiji, and Zimbabwe, in accordance with the timeline of "potentially restricted foreign jurisdictions" attached to the motion.

Apply for a suspension of compulsory enforcement and review framework. Once the court authorizes the procedure, the trust will send a "Jurisdiction Restriction Notice" to each creditor address recorded in the affected country/region.

The notice will explain the specified basis and set an opposition period of at least 45 days prior to the date of the notice.

III. Creditors' Objections and Potential Outcomes

Creditors who oppose must submit a sworn statement accepting the jurisdiction of the U.S. court.

During the objection period, the trust will suspend all distributions related to the disputed claims. If the dispute remains unresolved on the distribution record date, the withheld amount and any accrued interest will be returned to the trust property.

If the creditor raises an objection in a timely manner, the trust must seek a court ruling on whether its jurisdictional limitations are reasonable.

The document warns that if no objections are raised, the claims will be automatically forfeited after the objection deadline. The losing creditors will face the same outcome.

The trust defines the completion of delivery as the notification sent to the last address in the file via mail or email, and refers to this effort as "commercially reasonable."

IV. Claims from Three Arrows Capital and Overall Recovery Rate

Another focus of the debt statement is the $1.53 billion claim made by Three Arrows Capital (3AC). FTX alleges that 3AC put itself in crisis through high-risk trading, believing the amount may be exaggerated. If the court ultimately approves, the proportion that other investors can recover may decrease by about 20%. Currently, the total disputed claims have exceeded $2.2 billion, adding complexity to the liquidation.

Conclusion:

The liquidation process of FTX faces creditor challenges from 49 restricted jurisdictions, with Chinese creditors accounting for the majority. This decision may result in some creditors being unable to receive compensation. Meanwhile, the massive claims from Three Arrows Capital also add uncertainty to FTX's overall recovery rate. These factors complicate the liquidation process of FTX and have a direct impact on the affected users.