FTX Hearing Update: Judge Leans Toward Approval of Restrictions Process, But Claimants Urged to Act

The latest U.S. Bankruptcy Court hearing in the FTX case brought much-needed clarity — and concern — for thousands of creditors, particularly those from jurisdictions like China. At the center of discussion was a controversial motion from the Debtors seeking to formalize a framework for designating certain countries as “restricted jurisdictions,” where it would be legally impermissible to send distributions.

Judge Owens, who led the hearing, appeared sympathetic to creditor concerns and emphasized her intention to protect their interests. While inclined to approve the proposed process, she made it clear that the current language in the motion was too vague — particularly clauses that suggested prior distributions could be forfeited retroactively based on new restrictions. The judge requested the Debtors to revise the motion to ensure greater precision and fairness.

She also implicitly acknowledged the practical realities many face. The judge encouraged the Debtors to offer sufficient time for affected claimants to either change their residency or transfer (sell) their claims — providing a window for proactive decisions, rather than imposing sudden penalties.

One of the most alarming ambiguities — whether claimants in restricted jurisdictions might lose distributions they were already eligible for on previous record dates — was addressed. Thanks to creditor advocacy and legal clarification, it now appears that forfeiture of past entitlements will not be pursued. This is an important reassurance to claim buyers and original creditors alike.

Still, the process remains far from simple. Each jurisdiction will require a separate legal opinion before designation, and creditors will likely be given a 45-day period to object — an expensive and uncertain process. For many, this may prove too burdensome.

The Court will likely approve the updated motion in the coming weeks, formally launching the restriction process. While this helps the estate comply with sanctions and regulatory frameworks, it also effectively locks out creditors in many countries — unless they act.

The key message from the hearing: if you’re in a jurisdiction at risk of being restricted, now is the time to act. That may mean relocating your claim’s beneficial ownership or selling your claim entirely.

The judge’s comments made clear she’s offering an off-ramp — not slamming the door shut — but the window to take a cost-effective solution is open now, and it won’t last forever. The process ahead is long and complex: obtaining legal residency in another country can take months and significant expense. Creditors should act fast to ensure they remain eligible and get paid.

PAXTIBI LLP is a leading buyer of FTX claims —reach out to [email protected] or www.paxtibi.xzy to sell your claim or discuss your options confidentially.

In summary, no one’s past distributions are being erased, but the road ahead is complicated, costly, and slow for creditors in restricted regions.