FTX Bankruptcy Liquidation Controversy: Chinese Creditors Fear "Legal Confiscation" of $380 Million, How to Navigate the Path of Rights Protection?

As FTX's bankruptcy liquidation enters a critical stage, a highly controversial motion regarding the claims handling plan for users from "restricted countries" has sparked an uproar among global creditors. According to data shared by FTX creditor representative Sunil, approximately $1.4 billion in FTX's debt distribution remains unresolved. Among these, the claims from restricted regions amount to $470 million, with Chinese creditors holding the largest share at $380 million, accounting for 82% of the restricted claims. This means that Chinese creditors may not receive a single penny, and even their assets could be seized as "confiscated funds" in the liquidation trust account.

1. Controversial Motion: Regarding the Unfair Treatment of Creditors from "Restricted Countries"

FTX's liquidator stated that it will first seek legal advice to determine whether it can allocate assets to these jurisdictions; if the conclusion is that compensation is not possible, the relevant claims may even be "legally confiscated" and transferred to a liquidation trust account. The core of this motion is to classify users from certain jurisdictions (mainly including China) as "restricted foreign jurisdictions" and seek legal advice to determine whether compensation can be made; if the legal advice denies the possibility of compensation, the corresponding claims will be regarded as "disputed assets" and may be appropriated into the trust, no longer allocated to the relevant users.

Will, a major creditor of FTX, is also a key proponent opposing this motion and raising objections. He pointed out that this motion lacks factual and legal basis and violates the provisions of Section 1123 of the U.S. Bankruptcy Code regarding "equal treatment of similarly situated creditors."

II. Will's Reasons for Opposition: Legal Basis and Market Manipulation

Will will clarify 3 main reasons in the formal opposition letter to the U.S. bankruptcy court:

1. Compensation is denominated in US dollars, with no legal obstacles: Compensation is conducted in US dollars, similar to traditional bankruptcy claims. FTX's trust restoration has clearly stated that compensation will be made using US dollars or US dollar stablecoins. Even without using cryptocurrency, users in China can receive US dollar wire transfers through legal channels such as Hong Kong accounts, which do not constitute any legal obstacles. In the Celsius case, a US court also successfully paid USD compensation to Chinese creditors through international wire transfers.

2. Chinese law does not prohibit individuals from holding or receiving cryptocurrency assets: Even when paying with cryptocurrency assets, Chinese law does not prohibit individuals from holding or receiving them. Courts at all levels in China have recognized that virtual assets such as Bitcoin fall under the property category of the Civil Code, and Hong Kong has established a compliant cryptocurrency regulatory system. The regulatory declarations in the Macao region also do not prohibit individuals from holding coins or participating in clearing, and the policy texts cited in relation to trusts have no legal binding force.

3. Market manipulation due to the motion: Some distressed asset funds have exerted pressure through this motion, claiming that Chinese creditors should immediately sell their claims at a discount, otherwise they will "never receive compensation". They manipulate market sentiment by stating that "as long as 5% of Chinese claims are excluded, the remaining 95% will support". This not only amplifies panic but also turns bankruptcy liquidation into a game of wealth reshuffling.

Will earnestly request the court to dismiss the motion against it, to avoid the formation of an "arbitrage mechanism of low-price acquisition + full compensation," while ensuring that global creditors have equal opportunities for compensation in both procedure and substance. He emphasized that this second step of operation is unprecedented in past bankruptcy liquidation cases; it is no longer simply a matter of not compensating, but rather a form of confiscation.

3. Why Raise an Objection? Will's Path of Resistance

It is believed that if the motion is passed, the selection of lawyers and legal judgments will be led by the liquidation trust, greatly reducing the controllability of the matter. He hopes to fundamentally prevent the establishment of this motion in order to retain more proactive space. He pointed out that Chinese creditors currently account for only about 4% to 5% of the total debt, while the remaining 95% are creditors from other countries, making it highly likely that this motion will pass in the overall vote. Therefore, it is essential to stand up against it at this stage.

When initiating an objection motion, Will provided two options: submission through cooperating U.S. attorneys or self-submission. Self-submission requires notifying the presiding judge of the bankruptcy case, the FTX Recovery Trust legal team, and the U.S. Trustee's office by mail. The deadline for the objection motion is July 15.

Will encourage members in the group to write letters independently and express themselves independently, trying to articulate their true thoughts and positions. As long as they do not make obvious procedural errors, everyone can stand up and voice their opinions. He has roughly estimated that about 15 creditors have completed sending letters.

IV. Debt Assignment: Is it a way out or a trap?

Regarding debt trading, Will believes that this provides a way out for creditors in urgent need of money, which has its positive significance. However, what he cannot accept are some so-called "debt agents" or intermediaries who continually sell anxiety to the community, creating a panic atmosphere, thereby driving down debt prices and forcing small partners to reluctantly choose to sell their debts at low prices.

He pointed out that there is a very critical but easily overlooked provision in this motion – if a third-party institution buys your debt rights, your original holding country will no longer be considered when determining eligibility for compensation. This means that once the motion is passed, an artificial arbitrage space will be created, and Chinese creditors will feel like they are being driven out, having no choice but to sell their debt rights.

It is estimated that the arbitrage space conservatively ranges from 20% to 30%. In the bankruptcy liquidation of FTX, the debts are calculated based on an interest accumulation of 9% per year, so the final amount that can be recovered will depend on the time dimension and the scale of the assets recovered. This is also why there are so many professional securities companies and institutions willing to buy FTX debts at a discount now.

Five, Challenges and Prospects of the Road to Rights Protection

To be frank, the biggest challenge in the rights protection process is time and energy. He is almost working day and night on this matter, needing to frequently release information, respond to everyone, maintain continuous public attention, and ensure the normal operation of the community. He not only has to play the role of an "information guide," but also acts more like a "psychological supporter."

If the court maintains the restrictions after the hearing on July 22, Will indicated that there are two more phases to respond: a 45-day objection period, and monitoring whether the liquidator will appoint a lawyer specializing in Chinese affairs. If the situation deteriorates further, such as the hope for compensation basically disappearing, preparations for "stop-loss" must begin, such as considering debt transfer or discounted sale.

Conclusion:

The predicament faced by FTX's Chinese creditors is not only a financial loss but also a test of fairness and justice. Will's struggle showcases the courage and persistence of an individual in the face of a massive system. This journey of rights protection is fraught with challenges, but his efforts have also brought hope to all affected creditors. This incident serves as a reminder to all cryptocurrency investors that when choosing a platform, in addition to focusing on returns, they should also pay attention to the platform's compliance, transparency, and the safety of assets.