FTX Withdraws Motion Limiting Customer Claims Abroad

The FTX Recovery Trust has unconditionally withdrawn a motion that aimed to implement "restricted procedures" in certain foreign jurisdictions. This move is seen as a significant development for creditors seeking to protect their rights and interests during the ongoing restructuring process of FTX. The motion was initially filed to advance the execution of FTX’s restructuring plan.

Understanding the Withdrawal and Its Impact

The withdrawn motion would have permitted the Trust to undertake specific legal actions in foreign countries without requiring full disclosure to all involved parties. While such procedures can expedite recovery in complex, cross-border bankruptcy cases, the court had raised objections during a hearing on October 23, citing concerns about fairness and transparency for stakeholders. By withdrawing the motion, the Trust now commits to adhering to standard notification processes for any future actions, thereby safeguarding the interests of affected creditors.

FTX officially rescinded its motion on November 3, which had sought to limit repayments in 49 "restricted jurisdictions," including China, Russia, Ukraine, Saudi Arabia, and Pakistan. If the motion had been approved, claims from these countries, totaling approximately $800 million—with Chinese claims constituting 82%—could have been forfeited. Creditors interpret this withdrawal as a partial victory. The FTX Recovery Trust still has the option to re-file the motion at a later time.

According to recent filings, the FTX Recovery Trust continues to manage the liquidation of remaining assets and the subsequent distribution to creditors. Any procedural missteps in foreign jurisdictions could have potentially delayed or diminished the recovery for investors, making the court's decision a crucial step towards a more structured and equitable process.

A Broader Trend in Crypto Bankruptcy Proceedings

FTX's situation is emblematic of a growing trend where major cryptocurrency firms encounter intricate bankruptcy proceedings that span multiple countries. For instance, the 2022 collapse of Celsius Network also involved significant cross-border legal challenges as the platform navigated local laws while attempting to repay its customers.

These cases highlight the critical importance of meticulous legal planning, clear communication, and strict adherence to court procedures to protect investor interests. A Chainalysis report indicated that over $8 billion in cryptocurrency was lost to bankruptcies and scams in 2023, underscoring the substantial risks involved for both creditors and investors.