Written by: Gui Ruofei Lucius
The judicial experiences from the Mt. Gox and Celsius cases have provided a favorable reference and practical endorsement for Chinese creditors in their pursuit of claims in the FTX case. Although the current FTX motion pathway tends to be closed and exclusive, there remains discretion within the bankruptcy court. As long as Chinese creditors act appropriately, there is still hope for the confirmation of rights and realization of compensation.
On July 2, 2025, the FTX Recovery Trust submitted a motion (to implement restricted handling procedures in potentially restricted jurisdictions) to the U.S. Bankruptcy Court in Delaware, requesting to establish 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 lawyers hired by the trust determine that making payments to a certain jurisdiction violates local crypto regulatory laws, then the claims of creditors in that region will be converted into 'disputed claims', potentially depriving them of their recovery rights completely, which will be taken over by the FTX bankruptcy trust.
According to relevant statistics, Chinese creditors hold $380 million in claims, accounting for about 82% of the total claims in restricted areas. This motion has also attracted widespread attention in the Web3 field and the legal practice of the crypto industry, not only because it relates to the claims rights of hundreds of thousands of Chinese investors but also because it may have profound implications for the future legal applicability, user protection boundaries, and compliance pathways of global crypto enterprises in cross-border bankruptcy.
This article intends to analyze the issues involved in this motion and the current situation of rights protection for Chinese creditors from three dimensions: motion system, legal applicability, and comparative case analysis.
1. Introduction to Motion System and Analysis of Motion Content in This Case
Before analyzing the relevant disputes about 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 made to the bankruptcy court by the debtor, creditors, or other stakeholders regarding specific procedural matters or substantive requests. Its legal basis is usually the Federal Rules of Bankruptcy Procedure, supplemented by specific local court rules for implementation.
In Chapter 11 of the Federal Rules of Bankruptcy Procedure, motions can cover a wide range of areas, from asset disposal, claim confirmation, priority repayment order, to issues such as the denial of creditor compensation qualifications as shown in this case, all of which can be initiated through motion procedures. Motions typically need to be submitted as formal written documents (Motion Brief), clarifying their legal basis and factual claims, and providing relevant evidence in support. For motions involving significant procedural rights, the bankruptcy court usually arranges hearings to listen to the opinions of relevant parties, review whether the procedures comply, and whether the motion claims are valid, before making a ruling. In other words, the motion system constitutes an important component of the U.S. bankruptcy process and is also an important tool for bankruptcy participants to promote their own interests.
Returning to this case, the FTX bankruptcy trust invokes Section 105(a) of the Bankruptcy Code (the court has the power to issue necessary orders), Section 1142(b) (authorization of reorganization plan execution), and Rule 3020(d) of the Federal Rules of Bankruptcy Procedure, requesting the court to authorize the trust to implement 'restricted jurisdiction procedures'. This motion asserts a refusal to compensate creditors listed in Appendix B of the motion from 49 'potentially restricted jurisdictions', including countries such as China, Russia, Egypt, and Nigeria. The FTX bankruptcy trust provides the reason in this motion that the crypto regulatory policies of the aforementioned jurisdictions may lead to relevant fines or penalties, obstructing the legitimacy of debtor compensation while potentially exposing relevant personnel to criminal risks.
(The above image shows part of the original text of the motion filed by the FTX bankruptcy trust, explaining the main reasons for the motion.)
The substantive issues raised by this motion do not only concern whether U.S. law allows the exclusion of specific creditors' rights to recovery, but also whether the court has the authority to deny the claims qualifications of creditors from 'restricted countries', thus involving complex disputes at multiple levels. The following sections will conduct a detailed analysis from both substantive law and procedural law perspectives.
2. Scope of Legal Applicability and Controversy Focus: Procedure and Substance
From the perspective of substantive law, the core defense argument invoked by the FTX bankruptcy trust in its motion is that 'paying users in restricted jurisdictions may violate local crypto asset and foreign exchange control regulations'. On the surface, this assertion belongs to the category of the bankruptcy administrator's 'compliance risk management', but in essence, it has at least two obvious flaws in legal applicability and interpretation:
First of all, the logic of the motion proposed by the FTX bankruptcy administrator confuses the nature of payment tools and compensation assets. The objects intended for compensation by FTX are not crypto assets, but dollars or stablecoins approved by the court (such as USDC, USDP, etc.), and this payment method is 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 these two 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, and the courts of those jurisdictions did not raise compliance exemption requirements regarding the payment actions themselves, nor did they trigger relevant regulatory disputes.
Secondly, the motion has errors regarding the immediate applicability of Chinese laws and administrative regulations. Under the current legal framework in China, there is no comprehensive prohibition against individuals holding crypto assets or receiving payments in foreign crypto assets. The notice (on preventing the risks of token issuance and financing) issued on September 4, 2017, by the central bank and seven other ministries focuses on restricting financial institutions and ICO platforms from participating in token issuance and trading; while the notice (on further preventing and dealing with risks of virtual currency trading speculation) issued in September 2021 by the People's Bank of China and ten other ministries further strengthened the crackdown on trading platforms, it similarly did not deny the legality of individuals passively receiving or holding crypto assets. More crucially, many civil courts in various places have recognized the status of crypto assets (such as BTC, USDT, etc.) as 'network virtual property', applicable under Article 127 of the Civil Code for protection and can be protected as objects of claim enforcement, which is also the case in the criminal field. Therefore, the motion's interpretation of Chinese regulatory policy neither has universal binding force nor aligns with the trend of practical precedent development.
From a procedural law perspective, there are still many points for discussion regarding the procedural arrangements proposed by the FTX bankruptcy trust in its motion.
Although FTX's motion formally follows the procedural rules of the U.S. bankruptcy court, it essentially introduces a compliance review mechanism that is relatively closed and led by it. Specifically, the FTX bankruptcy trust unilaterally hires lawyers to provide legal opinions on whether compensation is possible based on compliance risks in specific jurisdictions, and requires that this opinion be an 'unqualified legal opinion' without exceptions or conditions. If a lawyer from a certain country or region believes that payment may face legal obstacles or cannot issue an absolutely unqualified opinion, all claims from that region will automatically be classified as 'disputed claims', halting compensation and possibly completely depriving claim qualification. This review mechanism is particularly likely to cause substantive injustice in regions with regulatory ambiguity or policy opacity (e.g., China). For example, in China, where there are currently no clear laws prohibiting individuals from receiving dollar payments or holding stablecoins, local lawyers may find it difficult to issue an absolutely affirmative legal opinion based on the factor of 'risk cannot be assessed'. In practice, most lawyers, even if they subjectively lean towards believing that compliance risks are limited, will still add reservation clauses in their opinions due to professional caution, resulting in 'unacceptable opinions' becoming the default outcome.
A more serious issue is that this compliance review mechanism is not established and promoted by a neutral court, but is completely controlled by the FTX bankruptcy trust side, from the selection of lawyers, issuance of instructions, to the setting, interpretation, and application of the content of legal opinions, all controlled unilaterally by the debtor. This 'pre-setting conclusions and then issuing legal opinions for justification' review mechanism has a flavor of 'shooting the arrow first and drawing the target later'. Furthermore, this procedural design has not undergone substantive review by 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 essentially means transferring the decision-making power of the recovery rights of creditors from certain countries to the legal advisors controlled by the debtor. This procedural design contradicts the core principle of 'fair treatment of similar creditors' emphasized by U.S. bankruptcy law and will place creditors in specific jurisdictions, such as China, in a systematically disadvantaged position.
In addition, the jurisdictional issues in this article are also controversial. As a territorial court, the U.S. bankruptcy court generally limits its jurisdiction to U.S. bankruptcy debtors and their assets, but FTX's customer base has a highly globalized characteristic, and its platform claims are not solely based on U.S. legal relationships, but contain complex elements of cross-border contract law. Although most Chinese creditors opened accounts through the FTX international platform, they 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 qualifications of specific country users based on policy factors remains a legal 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 they 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 take 'compliance risks' 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.
3. Comparative Study of Similar Cases
The FTX case is not the first time the crypto industry has faced cross-border creditor compensation disputes arising from the bankruptcy of a large platform. Based on past experiences, the Japanese Mt. Gox case and the U.S. Celsius case can serve as typical comparisons for this case. Although the two cases belong to different legal jurisdictions and have different regulatory attitudes, they share common features involving large-scale cross-border creditors, significant crypto asset liquidation, and substantial impacts on the rights and interests of Chinese users. The handling paths of the courts, the roles of trustees, and the principles of compensation in these cases constitute important references for comparative analysis of the FTX case.
(1) Mt. Gox Case
Mt. Gox is one of the most representative bankruptcy cases in Bitcoin history. In 2014, Mt. Gox announced bankruptcy due to trading system vulnerabilities and large-scale BTC theft, with over 20,000 creditors distributed around the world, among which Chinese creditors occupy a significant proportion. The case is under the jurisdiction of the Tokyo District Court, applying Japanese bankruptcy law and subsequent civil rehabilitation procedures. In terms of procedural design, the court did not set any restrictive thresholds based on user nationality or regulatory risks, but instead used a 'creditor portal system' to uniformly collect claims from global creditors and supported multilingual interfaces including Chinese and English, further reducing procedural barriers.
More critically, the Japanese court requires the trustee to propose a 'proportionate compensation + return of remaining assets in BTC' plan based on the actual structure of the assets, without distinguishing whether the creditor's country of origin has a conservative regulatory stance on virtual currencies. For instance, in China, although a notice (on preventing the risks of token issuance and financing) was issued at that time, it did not affect the progress of claim examination and compensation for Chinese users. The entire process, under the leadership of the Tokyo District Court, maintains a high degree of judicial neutrality and transparency, with the trustee regularly issuing multilingual progress announcements and responding to collective objections. Ultimately, the vast majority of creditors were able to obtain compensation via JPY, wire transfer, or BTC.
(2) Celsius Case
Celsius Network, as one of the largest crypto lending platforms in the United States, filed for bankruptcy reorganization in 2022, which is being handled by the Southern District of New York Bankruptcy Court, applying Chapter 11 of the Bankruptcy Code. In this case, Celsius, like FTX, faces 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 has established a creditor portal system with the liquidation company (Celsius Creditor Recovery Corporation), allowing creditors to submit claims globally, supporting multilingual operations, and allowing creditors to choose their preferred method of compensation, including dollar stablecoins or equivalent Bitcoin or Ethereum. It is noteworthy that in the Celsius case, there was no attempt to exclude creditors from any specific country by motion, nor was there a 'restricted jurisdiction' list established. For the Chinese users in the Celsius case, although the Chinese government has strict regulatory policies on virtual currencies, the Southern District of New York court 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 insists on the basic principle of equal compensation for creditors under bankruptcy law in its ruling and explicitly states 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, have already completed preliminary compensation in early 2024, mostly through third-party KYC verification platforms and received USDC transfers or corresponding BTC distributions, which also shows the court's insistence on the dual-track approach of substantive review and procedural safeguards.
Comprehensive analysis of the Mt. Gox and Celsius precedents shows that in bankruptcy handling mechanisms with strong judicial leadership and transparent procedural rules, even if the creditor's country has ambiguous regulations on crypto assets or foreign exchange restrictions, the court still tends to uphold the basic civil rights of creditors and advocates the principle of 'non-discriminatory participation', which has important reference value for the rights protection paths of Chinese creditors in the FTX case.
First, from the perspective of judicial philosophy, both the Japanese court in the Mt. Gox case opening claim submission channels for Chinese creditors and supporting local currency compensation options, and the U.S. New York bankruptcy court in the Celsius case explicitly rejecting 'regulatory uncertainty' as grounds to deny the claim submission qualifications of Chinese creditors, indicate that modern courts are increasingly focusing on substantive review and ensuring equal participation rights for creditors when handling cross-border crypto bankruptcy cases. Particularly in the Celsius case, when faced with users from mainland China and other regions, the U.S. court did not cite the regulations of any country as a reason to exclude compensation but instead achieved a balance between risk control and compliance through procedural tools such as KYC and identity verification.
Secondly, from the perspective of the bankruptcy court's discretionary mechanism, although U.S. bankruptcy procedures grant debtors certain rights to motion and procedural design space, the bankruptcy court still needs to conduct a substantive review of the motion. In conjunction with the current procedural direction of the FTX case—including the objections submitted by 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', but may lean towards a more detailed adjudication approach based on regional differentiation. In this context, if Chinese creditors can organize collective actions through lawyers, formally submit objections to the motion, and actively participate in the hearing process, their claims still have the hope of being recognized and compensated by the court.
Of course, the ultimate outcome of rights protection still depends on how the court balances the conflicts between 'compliance obstacles' and 'procedural equality', as well as between 'certain creditors' and 'all creditors'. If the court adopts the logic of the FTX motion, then Chinese creditors may need to further appeal or seek diplomatic channels to strive for procedural amendments.
In summary, the judicial experiences from the Mt. Gox and Celsius cases have provided a favorable reference and practical endorsement for Chinese creditors in their pursuit of claims in the FTX case. Although the current FTX motion pathway tends to be closed and exclusive, there remains discretion within the bankruptcy court. As long as Chinese creditors act appropriately, there is still hope for the confirmation of rights and realization of compensation.
