FTX Reverses Decision to Limit Repayments After Creditor Backlash

FTX has decided to withdraw its controversial initiative to restrict repayments to creditors in nearly 50 jurisdictions, following strong opposition, particularly from creditors in China.

Key Takeaways

FTX has rescinded its proposal to limit repayments in 49 jurisdictions after receiving pushback from creditors, especially from China.
The proposal aimed to disregard approximately $800 million in claims if local regulations were considered too challenging to comply with.
This decision is a significant victory for affected creditors as FTX's founder, Sam Bankman-Fried, continues to dispute allegations of FTX’s insolvency.

The request, part of FTX's ongoing Chapter 11 bankruptcy proceedings, aimed to implement a “Restricted Jurisdiction Procedure.” This would have allowed the company to withhold or forfeit claims from creditors in 49 specific regions where compliance with local laws was believed to be overly complicated.

FTX Drops Plan to Limit Repayments in 49 Jurisdictions After Creditor Pushback

Backlash Over Exclusion of $800M in Claims

This list of jurisdictions included significant countries like China, Russia, Ukraine, Pakistan, and Saudi Arabia. The claims from these areas totaled around $800 million, which represents approximately 5% of FTX’s estimated $16 billion in total distributions, with China alone accounting for 82% of this amount.

Under the proposed plan, FTX would have worked with local legal representatives to evaluate the feasibility of compliance for repayments in each jurisdiction. If compliance were deemed impossible, claims from those jurisdictions could have been forfeited, potentially redistributing these funds among other creditors after a 45-day period for objections.

This plan received immediate backlash from creditor groups. More than 300 claimants from China, represented by Singapore-based Weiwei Ji, filed an official objection in the Delaware bankruptcy court. Ji criticized the exchange for lacking a legitimate legal or factual basis for classifying China as a restricted jurisdiction, labeling the proposal as discriminatory and unaligned with bankruptcy principles of fairness.

Facing this increasing pressure, FTX withdrew the motion on Monday, doing so “without prejudice,” which means they might seek to propose it again in the future. For now, this withdrawal is seen as a slight victory for affected creditors who feared being excluded from getting repaid.

This situation unfolds as Sam Bankman-Fried (SBF), the founder of FTX who has been convicted, is set to appear in court before the US Court of Appeals for the Second Circuit in New York on Tuesday for an appeal hearing. Bankman-Fried is currently serving a 25-year sentence for fraud and conspiracy. Recently, he has again taken the spotlight by publishing a document asserting that neither FTX nor Alameda Research was "ever insolvent." He accused the bankruptcy management of misrepresenting the financial health of the exchange and said they "liquidated valuable assets unnecessarily."

His family has called for clemency from President Donald Trump, who has previously pardoned figures like Ross Ulbricht and Binance founder Changpeng Zhao.

Claims of FTX’s Solvency

As reported, Bankman-Fried has sparked renewed discussions regarding the FTX collapse, arguing that the exchange consistently maintained enough assets to fully repay customers. In a document dated September 30, the former CEO stated that the cited $8 billion shortfall during bankruptcy “never left," and customer recoveries of up to 143% illustrate that FTX faced a liquidity crisis, rather than insolvency.

“There have always been enough assets to repay all customers—in full, in kind—both in November 2022, and today,” he stated. He described the collapse as a “classic bank run,” initiated by panic withdrawals that rapidly drained liquidity. Bankman-Fried claimed that up until mid-2022, FTX and Alameda’s assets surpassed their liabilities and indicated that financing arrangements were in progress before the bankruptcy announcement. His document challenges the bankruptcy team's early claims of insolvency and attributes the reduced value and delays in creditor repayments to their management.