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FTX’s recent proposal to exclude creditors from 49 jurisdictions, including China, has sparked legal opposition, highlighting critical issues in crypto bankruptcy settlements.
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A group of Chinese creditors, led by Weiwei Ji, challenges the exclusion, arguing that crypto holdings are legally protected assets in China despite trading restrictions.
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According to COINOTAG, Ji emphasized that withholding distributions lacks legal basis and that prior cases like Celsius and Mt. Gox set important precedents for creditor payouts regardless of jurisdiction.
FTX’s bankruptcy plan to exclude Chinese creditors faces legal pushback, underscoring the complex regulatory landscape and precedents in crypto asset recovery.
FTX Bankruptcy Proposal Faces Legal Challenge Over Chinese Creditor Exclusion
The ongoing FTX bankruptcy proceedings have entered a contentious phase as the exchange’s proposal to limit creditor payouts in 49 jurisdictions, including China, encounters formal opposition. Weiwei Ji, representing over 300 Chinese creditors, filed an objection in the Delaware Bankruptcy Court on July 8, 2025, contesting the legal and factual grounds of the proposal. The plan aims to exclude creditors from regions where crypto regulations are ambiguous or prohibitive, with China accounting for more than 80% of the claim value affected.
This development raises significant questions about the treatment of crypto asset claims in jurisdictions with restrictive regulatory environments. Ji’s objection highlights that the proposal could unjustly penalize legitimate creditors by denying them rightful distributions, despite the claims being denominated in U.S. dollars and settled through compliant financial channels.
Legal Status of Crypto Holdings in China and Its Implications for Bankruptcy Claims
Central to Ji’s argument is the distinction between crypto trading restrictions and the legality of crypto ownership in China. While the Chinese government has imposed bans on retail trading and crypto exchanges, ownership of digital assets such as Bitcoin and Ethereum remains legally recognized. This position is supported by judicial decisions, including a landmark 2024 Shanghai court ruling that affirmed digital assets as protected personal property under civil law.
Ji further notes that Hong Kong’s separate regulatory framework provides a viable conduit for the lawful receipt of funds by Chinese creditors, reinforcing the argument that payouts can be executed without breaching any laws. This nuanced understanding challenges the blanket exclusion proposed by the FTX Recovery Trust and calls for a more tailored approach that respects both jurisdictional regulations and creditor rights.
Precedents from Celsius and Mt. Gox Support Inclusive Creditor Payouts
Drawing on historical precedents, Ji references the Celsius bankruptcy and Mt. Gox rehabilitation cases, where Chinese creditors successfully received payouts in U.S. dollars and cryptocurrencies without jurisdiction-based restrictions. These cases demonstrate that bankruptcy settlements can accommodate international creditors through established financial mechanisms, setting a benchmark for the current FTX proceedings.
The Celsius case, in particular, involved USD payments to Chinese users, while Mt. Gox creditors accessed crypto distributions via Kraken, a regulated exchange. These precedents underscore that regulatory concerns do not automatically justify exclusion, especially when funds are transferred through compliant channels.
Upcoming Court Hearing and Potential Impact on Crypto Bankruptcy Practices
The Delaware Bankruptcy Court is scheduled to review the objection on July 22, 2025. The outcome could have far-reaching implications for how crypto bankruptcies are managed globally, especially regarding creditor inclusivity and jurisdictional challenges. A rejection of FTX’s exclusion proposal would affirm the importance of equitable treatment for all creditors, regardless of geographic location, and reinforce the legal recognition of crypto assets as recoverable property.
Stakeholders and observers are encouraged to follow the proceedings closely, as the court’s decision may influence future bankruptcy frameworks and regulatory approaches within the crypto industry.
Conclusion
The legal challenge against FTX’s proposal to exclude Chinese creditors highlights the evolving intersection of crypto regulation and bankruptcy law. By emphasizing the lawful status of crypto holdings and citing relevant precedents, the objection advocates for fair and inclusive treatment of creditors. The forthcoming court ruling will be pivotal in shaping creditor rights and recovery processes in crypto bankruptcies, underscoring the need for nuanced, jurisdiction-aware solutions in this complex landscape.
