Windows 11 Upgrade fails with 0xc190012e

[goedderz]

After removing system encryption of a Windows 10 installation, an upgrade to Windows 11 fails with error 0xc190012e. Deleting or renaming the file C:\Users\Default\AppData\Local\Microsoft\Windows\WSUS\SetupConfig.ini solves the issue.

I noticed that the file contains

[SetupConfig]
ReflectDrivers="C:\Program Files\VeraCrypt"
PostOOBE=C:\ProgramData\VeraCrypt\SetupComplete.cmd

when the system encryption is in place, and gets reduced to

[SetupConfig]

after removing the system encryption. However, that essentially empty file seems to prevent Windows from upgrading. I've double-checked this on another machine, and got the same behavior.