FTX Files Motion to Block Creditor Payouts in 49 Countries; Legal Backlash Looms

FTX, a crypto exchange that went bankrupt in 2022, is under fire over seeking court permission to freeze payment to creditors in 49 countries. The exchange has cited legal concerns over transferring crypto assets to persons in jurisdictions that restrict crypto transactions.

The proposal, filed with the U.S. Bankruptcy Court in Delaware, has already elicited anger among aggrieved creditors. In particular, Chinese-based victims have expressed discontentment with the request and maintain that they have legal grounds to access funds

FTX Payout Freeze Tied to Legal Risk in Restrictive Jurisdictions

As stated in a court filing made on July 2, FTX seeks to temporarily freeze approximately 5% of the total creditor claims with respect to regions in which the legal status of crypto is uncertain or hostile. According to the FTX Recovery Trust, which manages the allocation of the recovered bankruptcy estate, the legal doubt creates serious compliance and possible criminal liability risk should it distribute funds to those jurisdictions

“Distributions made by or on behalf of the FTX Recovery Trust into jurisdictions in violation of these [crypto-related] legal restrictions may trigger fines and penalties, including personal liability for directors and officers, and/or criminal penalties up to and including imprisonment,” the filing noted

FTX further noted that laws and regulations in up to 49 countries either restrict or outright ban cryptocurrency transactions. This makes payouts a complex and legally risky endeavor for the bankrupt FTX crypto exchange. Creditors to be affected include those in China, Russia, Pakistan, Egypt, Nigeria, Iran, Saudi Arabia, Ukraine, among others

Potentially Restricted Foreign Jurisdictions per FTX | Source: Court FilingHowever, FTX suggested a hold-and-review structure to mitigate any legal risks. In this system, distributions to creditors in such countries will be suspended until FTX and its lawyers perform legal evaluations in each jurisdiction. In case the review does not reveal legal obstacles, the Trust will make payouts

Should the exchange find restrictions in these jurisdictions, then the Trust will keep the assets on hold and the creditors will be considered residents of ‘Restricted Foreign Jurisdiction.’ In this case, creditors could lose their claims in full. But, they have up to 45 days to object the decisions

Creditors Start Legal Pushback Against the Proposal

As per the filing, Chinese creditors make up to 82% of the ‘restricted jurisdiction’ claims. Creditors from China are thus putting up fierce opposition of the proposal. One creditor, Zhetengji, argues that despite domestic ban on crypto trading, the law allows them to hold U.S dollars and conduct wire transfers through offshore accounts

I’ve already contacted my lawyer in New York and am waiting for her response.

I will definitely take action and will raise objections at every stage.

I also hope more people will step up. We can’t just sit and wait—this is absolutely unreasonable.

While mainland China does not…

— Will的折腾纪 (@zhetengji) July 3, 2025

Another creditor (Wart) accused the FTX Recovery Trust of attempting to redirect funds owed to restricted jurisdictions in order to cover gaps in other areas of the bankruptcy estate. He warned of potential coordinated legal action

“FTX literally plans to use the funds from these restricted regions to make up their fund deficit. This would burst out shockingly once victims in restricted regions take actions and break the lies. If victims in restrict regions unite together, it would force FTX to take the most serious consequences and pay for this fraud,” Wart wrote

This backlash from creditors signals possible legal trouble for FTX. The exchange is navigating one of the most complex bankruptcy cases in crypto history. In the meantime, the U.S bankruptcy court will have to determine whether FTX’s plan is a reasonable attempt at abiding by the law or an attempt to discriminate against foreign creditors. Either way, the case will shape the future of cross-border crypto bankruptcies