Chinese creditors question FTX's motion to suspend payments to restricted countries: Discrimination or Compliance?

During the bankruptcy liquidation process of FTX, a motion proposed by the FTX estate sparked significant controversy. The motion requested to suspend payments to residents of jurisdictions that impose restrictions related to laws or regulations on crypto assets transactions. However, a Chinese creditor, Weiwei Ji, objected, pointing out that despite residing in Singapore, they are classified as Chinese creditors due to holding Chinese passports and face the risk of being excluded from compensation. This objection represents the voices of Weiwei Ji (phonetic) and an increasing number of Chinese creditors (according to documents, this group exceeds 300 individuals) who question the fairness and legality of this motion.

Details of FTX Estate Motion: Suspension of Payments to Restricted Countries

FTX Estate filed a motion on July 2nd requesting to suspend payments to residents of restricted countries. The motion states: "Distributions made by the FTX Recovery Trust or on behalf of the FTX Recovery Trust to jurisdictions that violate these legal restrictions may trigger fines and penalties, including personal liability for directors and executives, and/or criminal penalties that may result in imprisonment."

The FTX Estate's motion identifies 49 countries where the legal status of Crypto Assets is unclear or highly restrictive, which may pose risks due to complex cross-border legal disputes. The motion has been submitted to the U.S. Bankruptcy Court for the District of Delaware. According to the motion, 5% of the value of allowed claims should be allocated to residents of these restricted jurisdictions. In addition to China, other potentially restricted countries include Russia, Egypt, Afghanistan, Tunisia, Zimbabwe, Ukraine, and Moldova. The FTX Estate cites Moldova as an example in its motion, noting the country's legal restrictions on services related to virtual assets.

The Objections of Chinese Creditor Ji Weiwei: The Struggle for Fairness and Legality

Creditor Ji Weiwei raised objections to the motion regarding the FTX estate and spoke on behalf of over 300 Chinese creditors. The opposition raised two key arguments:

Payments are made in US dollars, with no legal barriers: FTX settles in US dollars, which is the standard legal repayment. Ji Weiwei pointed out that even without using Crypto Assets, users in China can receive US dollar wire transfers through legal channels such as Hong Kong accounts, which does not constitute any legal barriers.

Chinese law does not prohibit individuals from holding or receiving Crypto Assets: Ji Weiwei pointed out that the issuance of Crypto Assets is legal in China, and digital assets constitute "personal property." He emphasized that Chinese law does not prohibit individuals from holding or receiving Crypto Assets.

Ji Weiwei argued in the documents: "My family holds four KYC-verified accounts with total claims exceeding 15 million dollars... We have fully complied with all procedural requirements under the plan. The motion now being presented jeopardizes our allocation rights in an arbitrary and unfair manner."

FTX Repayment Progress and Controversies

The FTX Estate began repayments on February 18, starting with convenience members. The repayment amount is determined based on the value of digital assets at the time of the exchange's collapse in November 2022. This policy has angered some creditors, as the Crypto Assets market experienced a significant surge after the FTX collapse, and many creditors believe that repayments should be made at the current market value.

The controversy of this motion lies in the fact that it may cause some creditors to be unable to receive compensation due to their nationality or place of residence, which is seen as a form of discrimination. Ji Weiwei's objection emphasizes the principle that all creditors of the same category should be treated equally in bankruptcy liquidation.

The motion proposed by the FTX estate to suspend payments to restricted countries has sparked strong backlash from Chinese creditors. This is not only a struggle over $380 million in claims but also a profound discussion on the fairness of bankruptcy liquidation, the applicability of international law, and the nature of crypto assets. The outcome of this legal battle will have significant implications for the handling of future cross-border cryptocurrency bankruptcy cases.