This article intends to analyze the issues involved in the motion and the current situation of Chinese creditors' rights protection from three dimensions: the motion system, legal applicability, and case analysis.
Written by: Gui Ruofei Lucius
"The judicial experiences from the Mt. Gox and Celsius cases have provided favorable references and practical endorsements for Chinese creditors in claiming their rights in the FTX case. Although the current FTX motion path tends to be closed and exclusive, there remains discretion in the bankruptcy court. As long as Chinese creditors act appropriately, there is still hope for rights confirmation and compensation realization."
On July 2, 2025, the FTX Bankruptcy Trust submitted a "Motion for Implementing Restricted Procedures in Potentially Restricted Jurisdictions" to the U.S. Bankruptcy Court in Delaware, requesting the establishment of a differentiated compensation mechanism for creditors in 49 jurisdictions (including China). The core content of this motion can be summarized as follows: if the local lawyer hired by the trust determines that payment to a certain jurisdiction violates local cryptocurrency regulatory laws, the claims of creditors in that region will be classified as "disputed claims," which may ultimately lead to complete deprivation of the right to compensation, with the FTX Bankruptcy Trust taking over.
According to relevant statistics, Chinese creditors hold claims amounting to $380 million, accounting for approximately 82% of the total claims in restricted regions. This motion has also attracted widespread attention in the Web3 field and the legal practice of the cryptocurrency industry, not only because it concerns the compensation rights of hundreds of thousands of Chinese investors but also because it may have far-reaching implications for the legal applicability, user protection boundaries, and compliance paths of global cryptocurrency companies in future cross-border bankruptcies.
This article intends to analyze the issues involved in the motion and the current situation of Chinese creditors' rights protection from three dimensions: the motion system, legal applicability, and case analysis.
I. Introduction to the Motion System and Brief Analysis of the Motion Content
Before analyzing the relevant disputes regarding this motion, it is necessary to first introduce the basic mechanism of the "motion system" in U.S. bankruptcy procedures. Under U.S. bankruptcy law, a motion refers to a formal application submitted to the bankruptcy court by the debtor, creditors, or other interested parties regarding specific procedural matters or substantive requests. The legal basis is usually the Federal Rules of Bankruptcy Procedure, supplemented by specific local court rules for enforcement.
In Chapter 11 of the Federal Rules of Bankruptcy Procedure, motions can cover a wide range of issues, from asset disposal, claim confirmation, priority of payment, to denial of creditor compensation eligibility, as shown in this case. Motions typically require the submission of a formal written document (Motion Brief) that outlines the legal basis and factual claims, along with relevant evidence to support them. For motions involving significant procedural rights, the bankruptcy court usually arranges a hearing to listen to the opinions of relevant parties, review whether the procedure complies with regulations, and determine whether the motion claims are valid before making a ruling. In other words, the motion system constitutes an important part of the U.S. bankruptcy process and is a crucial tool for bankruptcy participants to advance their interests.
Returning to this case, the FTX Bankruptcy Trust invokes Section 105(a) of the U.S. Bankruptcy Code (the court has the power to issue necessary orders), Section 1142(b) (authorization for the execution of the reorganization plan), and Section 3020(d) of the Federal Rules of Bankruptcy Procedure, requesting the court to authorize the trust to implement "Restricted Jurisdiction Procedures." The motion claims to refuse compensation to the creditors listed in Attachment B of the motion from 49 "potentially restricted jurisdictions," including China, Russia, Egypt, Nigeria, and others. The FTX Bankruptcy Trust provides the rationale that the cryptocurrency regulatory policies in these jurisdictions may lead to relevant fines or penalties, hindering the legitimacy of the debtor's compensation while potentially exposing relevant personnel to criminal risks.
(The above image shows part of the original text of the motion proposed by the FTX Bankruptcy Trust, explaining the main reasons for the motion.)
The substantive issues raised by this motion are not only whether U.S. law allows the exclusion of specific creditors' rights to compensation but also whether the court has the authority to deny the claims of creditors from "restricted countries," thus involving complex disputes on multiple levels. The following sections will conduct a detailed analysis from the perspectives of substantive law and procedural law.
II. Scope of Legal Applicability and Focus of Disputes: Procedure and Substance
From the perspective of substantive law, the core defense argument raised by the FTX Bankruptcy Trust in the motion is that "paying users in restricted jurisdictions may violate local cryptocurrency and foreign exchange control regulations." This claim superficially falls under the category of the bankruptcy administrator's "compliance risk management," but in terms of legal applicability and interpretation, it has at least two significant flaws:
First, the logic of the FTX bankruptcy administrator's motion confuses the nature of payment instruments and compensation assets. The objects intended for compensation by FTX are not cryptocurrencies but U.S. dollars or stablecoins approved by the court (such as USDC, USDP, etc.), and these payment methods are not directly restricted in the international payment system. Similar successes can be seen in the Celsius and Mt. Gox bankruptcy liquidation cases, where the bankruptcy administrators of both cases paid compensation to individual creditors located in restricted jurisdictions (such as China and Russia) through SWIFT international wire transfers or stablecoin transfers under court supervision. The courts in the relevant jurisdictions did not raise compliance exemption requirements regarding the payment actions themselves, nor did they trigger related regulatory disputes.
Second, the motion misinterprets the immediate applicability of Chinese laws and administrative regulations. Under the current legal framework in China, there is no comprehensive prohibition against individuals holding cryptocurrencies or receiving payments in foreign cryptocurrencies. The announcement issued by the central bank and seven ministries on September 4, 2017, titled "Notice on Preventing Risks of Token Issuance and Financing," primarily focuses on restricting financial institutions and ICO platforms from participating in token issuance and trading. Meanwhile, the "Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation" issued by the People's Bank of China and ten ministries in September 2021 further strengthened the crackdown on trading platforms but similarly did not deny the legality of individuals passively receiving or holding cryptocurrencies. More critically, many civil courts in various regions have recognized cryptocurrencies (such as BTC, USDT, etc.) as "network virtual property," which falls under the protection scope of Article 127 of the Civil Code and can be protected as objects of debt execution, and this is also true in the criminal field. Therefore, the motion's interpretation of Chinese regulatory policies lacks universal binding force and contradicts the developmental trend of practical case law.
From the perspective of procedural law, there are still many aspects of the procedural arrangements proposed by the FTX Bankruptcy Trust that warrant discussion.
Although FTX's motion formally follows the procedural rules of the U.S. bankruptcy court, it essentially introduces a "compliance review mechanism" that is led by itself and relatively closed in operational terms. Specifically, the FTX Bankruptcy Trust unilaterally hires lawyers to provide legal opinions on whether compensation is permissible based on compliance risks in specific jurisdictions, and requires that such opinions must be "unqualified and unconditional" to be accepted. If a lawyer in a certain country or region believes that payment may face legal obstacles or cannot provide an absolute unqualified opinion, all claims from that region will automatically be classified as "disputed claims," suspending compensation or even completely depriving the right to claim. This review mechanism is particularly likely to lead to substantive unfairness in regions with ambiguous regulations or opaque policies (such as China). For instance, under the current circumstances in China, where there is no clear law prohibiting individuals from receiving U.S. dollar compensation or holding stablecoins, local lawyers, considering the factor of "risk cannot be assessed," would find it difficult to issue an absolutely affirmative legal opinion. In practice, most lawyers, even if they subjectively lean towards believing that compliance risks are limited, will still include reservation clauses in their opinions based on professional caution, resulting in "unacceptable opinions" becoming the default outcome in the procedure.
An even more serious issue is that this compliance review mechanism is not established or promoted by a neutral court but is completely controlled by the FTX Bankruptcy Trust, from the selection of lawyers, issuance of instructions, to the content setting, interpretation, and application of legal opinions, all controlled unilaterally by the debtor. This "pre-set conclusion, then issuing legal opinions to argue" review mechanism has a sense of "shooting the arrow first and drawing the target later." Furthermore, this procedural design has not undergone the substantive review process of the court itself. If the court directly accepts the motion request based solely on the content of the legal opinions submitted by the debtor, it effectively transfers the decision-making power regarding the rights of creditors from certain countries to legal advisors controlled by the debtor. This procedural design contradicts the core principle of "fair treatment of similar creditors" emphasized in U.S. bankruptcy law and will place creditors from specific jurisdictions, such as China, in a systematically disadvantaged position.
In addition, the jurisdictional issues in this article are also contentious. As a territorial jurisdiction court, the U.S. bankruptcy court's judicial authority is usually limited to U.S. bankruptcy debtors and their assets. However, FTX's customer base has a highly globalized characteristic, and its platform's claims do not constitute a single U.S. legal relationship, containing complex elements of transnational contract law. Most Chinese creditors opened accounts through the FTX international platform but did not explicitly agree to the application of U.S. law or accept exclusive jurisdiction by U.S. courts. Therefore, whether a single jurisdiction court can completely exclude the claims of specific national users based on policy factors remains a legal applicability dispute. According to the general principles of private international law, although bankruptcy procedures have a centralized liquidation effect, they should not arbitrarily deprive foreign creditors of their legitimate claims, otherwise it may violate the spirit of international laws such as the Hague Convention on Choice of Court Agreements and the UNCITRAL Model Law on Cross-Border Insolvency. If U.S. courts use "compliance risk" as a universally applicable basis for motions, it may set a precedent for other debtors in future cross-border bankruptcy cases, further weakening the legal status of foreign creditors.
III. Comparative Study of Similar Cases
The FTX case is not the first time the cryptocurrency industry has faced cross-border debt repayment disputes arising from the bankruptcy of a large platform. From past experiences, the Mt. Gox case in Japan and the Celsius case in the U.S. can serve as typical contrasts for this case. Although the two cases belong to different legal jurisdictions and have different regulatory attitudes, they share common characteristics involving large-scale cross-border creditors, substantial cryptocurrency asset liquidation, and significant impacts on the rights of Chinese users. The handling paths of the courts in these cases, the roles of trustees, and the principles of repayment constitute important references for comparative analysis of the FTX case.
(I) Mt. Gox Case
Mt. Gox is one of the most representative bankruptcy cases in the history of Bitcoin trading platforms. In 2014, Mt. Gox announced bankruptcy due to system vulnerabilities and a massive theft of BTC, with over 20,000 creditors distributed globally, among which Chinese creditors accounted for a significant proportion. The case was under the jurisdiction of the Tokyo District Court in Japan, applying the Japanese Bankruptcy Act and the subsequently initiated Civil Rehabilitation Procedure. In terms of procedural design, the court did not set any restrictive thresholds based on the nationality of users or regulatory risks; instead, it unified the collection of global creditor claims through a "Creditor Portal System," supporting multilingual interfaces including Chinese and English, further lowering procedural barriers.
More critically, the Japanese court required the trustee to propose a "proportional compensation + return of remaining assets in BTC" plan based on the actual structure of the assets, without distinguishing whether the creditor's country held a conservative regulatory stance on virtual currencies. For instance, in China, although the "Notice on Preventing Risks of Token Issuance and Financing" had been issued, it did not affect the review and compensation progress for Chinese users' claims. The entire procedure maintained a high degree of judicial neutrality and transparency under the leadership of the Tokyo District Court, with the trustee regularly issuing multilingual progress announcements and responding to collective objections. Ultimately, the vast majority of creditors were able to receive compensation through JPY, wire transfers, or BTC. The Mt. Gox bankruptcy case demonstrates that even in a complex cross-border context, as long as the court leads the process fairly and applies a unified compensation standard, the regulatory complexity of cryptocurrency does not constitute sufficient reason to prohibit or restrict the compensation of external creditors.
(II) Celsius Case
Celsius Network, as one of the largest cryptocurrency lending platforms in the U.S., filed for bankruptcy reorganization in 2022, which was accepted by the Southern District Bankruptcy Court of New York, applying Chapter 11 of the Bankruptcy Code. In this case, Celsius, like FTX, faced a large number of cross-border creditors, particularly with a broad user base in Asia and Europe.
In terms of specific procedural arrangements, the bankruptcy court and the liquidation company (Celsius Creditor Recovery Corporation) established a creditor portal system, opening up claims to creditors worldwide. The system supports multilingual operations and allows creditors to choose their compensation methods, including U.S. dollar stablecoins or equivalent Bitcoin and Ethereum. Notably, the Celsius case did not attempt to exclude any specific country's creditors through a motion nor did it establish a "restricted jurisdiction" list. For Chinese users in the Celsius case, despite the strict regulatory policies of the Chinese government on virtual currencies, the Southern District Court of New York did not adopt "potential compliance obstacles" or "foreign exchange controls" as grounds to exclude or freeze the compensation rights of Chinese creditors.
More importantly, the court upheld the fundamental principle of equal compensation for creditors under bankruptcy law and explicitly stated that unless there is a clear legal prohibition or a foreign court requests assistance, foreign creditors' rights should not be unilaterally denied due to regulatory ambiguity. In fact, creditors, including a large number of users from mainland China in the Celsius case, completed preliminary compensation by early 2024, most of whom verified their identities through third-party KYC review platforms and received USDC transfers or corresponding BTC allocations. This also demonstrates the court's insistence on a dual-track approach of substantive review and procedural guarantees.
In summary, the precedents of Mt. Gox and Celsius show that in a bankruptcy handling mechanism with strong judicial leadership and transparent procedural rules, even if the creditor's country has ambiguous cryptocurrency regulations or foreign exchange restrictions, the court tends to uphold the basic civil rights of creditors and advocate for the principle of "non-discriminatory participation." This has important reference value for Chinese creditors in their rights protection path in the FTX case.
First, from the perspective of judicial philosophy, whether it is the Japanese court in the Mt. Gox case opening up claim channels for Chinese creditors and supporting local currency compensation options, or the U.S. Bankruptcy Court in New York in the Celsius case explicitly rejecting the denial of Chinese creditors' claim qualifications based on "regulatory uncertainty," it indicates that modern courts are increasingly focusing on substantive review and the protection of creditors' equal participation rights when handling cross-border cryptocurrency bankruptcy cases. Particularly in the Celsius case, the U.S. court did not cite any country's regulations as a reason to exclude compensation for users from mainland China but instead achieved a balance between risk control and compliance through procedural tools such as KYC and identity verification.
Second, regarding the discretion mechanism of the bankruptcy court, while U.S. bankruptcy procedures grant debtors certain motion rights and procedural design space, the bankruptcy court ultimately needs to conduct substantive reviews of the motions. Considering the current procedural direction of the FTX case—including the submitted objections from representatives of Chinese creditors and widespread protests from the global creditor community—it can be reasonably expected that the court may not unconditionally adopt the FTX Bankruptcy Trust's motion to "exclude creditors from restricted jurisdictions" and may lean towards a more detailed, region-specific adjudication approach. In this context, if Chinese creditors can organize collective actions through lawyers, formally submit opposing motions, and actively participate in hearing procedures, their claims still have hope of being recognized and compensated by the court.
Of course, the final outcome of rights protection still depends on how the court ultimately balances the conflicts between "compliance obstacles" and "procedural equality," as well as between "some creditors" and "all creditors." If the court adopts the logic of FTX's motion, Chinese creditors may need to further appeal or seek to amend the procedures through diplomatic channels.
In conclusion, the judicial experiences from the Mt. Gox and Celsius cases have provided favorable references and practical endorsements for Chinese creditors in claiming their rights in the FTX case. Although the current FTX motion path tends to be closed and exclusive, there remains discretion in the bankruptcy court. As long as Chinese creditors act appropriately, there is still hope for rights confirmation and compensation realization.
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