Not sure why this solution did not pop up here but I just did the following:
- Created a new custom virtual machine
- Choose Windows 11 64-bit Arm
- Leave UEFI Secure Boot unchecked
- Auto-generate the password and save in keychain
- Select Use an existing virtual disk
- Find the useless encrypted VM (for which no password exists); then select Virtual Disk.vmdk
- Choose Make a copy of the virtual disk
After the copying process the new VM started up right away and worked as expected from the previous stored state.
