Sahar Iqbal
Akhund Forbes, Pakistan
sahar.iqbal@akhundforbes.com

Introduction: the shift from ‘what’ to ‘how’

For years, the insolvency world was paralysed by a metaphysical question: is bitcoin property, or merely information? The distinction was critical. If crypto was just data, it could not be ‘owned’ or sold by a liquidator. However, today, that debate is effectively dead. Courts across the United Kingdom, Singapore and the United States have definitively categorised digital assets as property, capable of being held in trust and liquidated.

Yet, this legal victory has unveiled a far more pragmatic problem. Declaring an asset ‘property’ is meaningless if you cannot seize it. The frontier of insolvency has shifted from establishing legal title to enforcing practical control.^[1] The challenge for modern practitioners is no longer arguing what crypto is, but wrestling with the unique mechanics of private keys, cold storage and non-compliant debtors who hide behind the adage, ‘not your keys, not your coins’.

The global consensus: a victory lap for regulators

The debate surrounding the legal status of cryptocurrencies has evolved significantly in recent years. No longer a point of contention, the classification of crypto-assets as property has become well-established across major common law jurisdictions, allowing insolvency practitioners to focus on asset recovery with greater confidence and clarity.

In the UK, the Law Commission’s Final Report on Digital Assets (June 2023) made a pivotal recommendation, concluding that cryptocurrencies should be treated as a distinct form of property. This view positions crypto as a third category of property, separate from both traditional property and intangible assets like data. By categorising crypto in this way, the report effectively enabled insolvency practitioners to navigate asset recovery procedures with greater precision, recognising the unique nature of digital assets. A key ruling that reinforced this new framework was AA v Persons Unknown (2019), where a UK court affirmed that bitcoin was property and could be held and protected under trust law, particularly in cases of fraud or theft.^[2] This case was instrumental in establishing legal precedent, allowing liquidators to treat crypto-assets as recoverable property in insolvency cases.

Following the UK’s lead, Singapore made significant strides in establishing crypto-assets as property in insolvency matters. The Janesh s/o Rajkumar v Unknown Person (‘CHEFPIERRE’) case (2022) saw the Singapore High Court rule that crypto-assets could be held in trust, just like traditional forms of property.^[3] This decision emphasised that, under existing legal frameworks, crypto-assets are subject to the same recovery mechanisms that govern more tangible assets. This legal alignment greatly enhanced insolvency practitioners’ ability to pursue asset recovery in cases involving digital currencies, providing them with a more predictable framework for action.

Similarly, Hong Kong joined the global consensus with its landmark decision in Re Gatecoin Ltd (2023). Here, the court confirmed that crypto-assets held by exchanges are not only property, but are also available for liquidation during insolvency proceedings. This judgment reinforced the view that digital assets are not outside the scope of traditional recovery mechanisms. Importantly, it established that liquidators can recover assets directly from exchanges, ensuring that these assets are available to creditors, even when held by third parties.

Across the US, high-profile cases like those of FTX^[4] and Celsius^[5] further solidified the global treatment of crypto as property. In these bankruptcy proceedings, courts ruled that the assets held by the exchanges were considered part of the bankruptcy estate, thus subject to distribution among the creditors. In the case of FTX, the court made it clear that the assets held on behalf of customers were property of the bankruptcy estate, aligning with the treatment of crypto-assets as recoverable property. Similarly, in the Celsius case, the court’s ruling affirmed that crypto-assets in the possession of the exchange were available for recovery and should be redistributed to creditors as part of the bankruptcy estate.

The decisions in these jurisdictions, spanning the UK, Singapore, Hong Kong and the US, have brought an end to the legal uncertainty that once surrounded the treatment of crypto-assets in insolvency proceedings. They have not only confirmed the property status of cryptocurrencies, but have also paved the way for clearer asset recovery strategies, enabling insolvency practitioners to move forward with more confidence when recovering digital assets.

These landmark rulings have provided a unified understanding of crypto as property, removing any lingering doubts about its legal classification and simplifying asset recovery strategies.

The new headache: legal title vs practical control

While the legal classification of crypto as property is now clear, the real challenge for insolvency practitioners concerns control over these assets. The difficulty in asset recovery now lies not in proving that crypto is property, but in the practicalities of accessing and controlling these assets when debtors refuse to cooperate.

While the law now recognises title, the physics of the blockchain remain indifferent to court orders. In traditional banking, a judge orders a bank to freeze the relevant funds and the bank complies. When dealing with crypto, if a debtor memorises a seed phrase and destroys the hardware wallet, no third party can effectuate a transfer.

This has forced insolvency practitioners to pivot from in rem remedies (seizing the asset) to in personam pressure (squeezing the debtor). When a debtor refuses to surrender a private key, the liquidator’s most potent weapon is no longer a seizure order, but a committal order. Courts are increasingly willing to hold uncooperative debtors in contempt, utilising the threat of imprisonment to compel the disclosure of encryption keys. The battle is no longer about hacking the wallet, but about breaking the resolve of the individual holding the keys.

This issue has given rise to the industry mantra: ‘not your keys, not your coins’. Legal title to crypto-assets alone is insufficient if the debtor is not willing to hand over the private keys necessary to move the assets. Unlike traditional banking systems where asset transfers are traceable and require intermediaries, crypto-transactions are instantaneous and can be conducted without central oversight, making it easier for debtors to hide or move assets quickly.

Moreover, the speed and anonymity of crypto-transactions further complicate the task for liquidators. Assets can be moved across wallets and exchanges in seconds, often bypassing traditional methods of tracking and freezing assets. This makes crypto-assets particularly vulnerable to asset hiding, adding complexity to the already challenging process of asset recovery.

The asset recovery toolkit: how liquidators are winning

Despite these challenges, insolvency practitioners have developed innovative legal strategies and tools to help recover crypto-assets. These methods, while more complex than traditional asset recovery procedures, are increasingly effective in tracing and retrieving digital assets.

One of the most successful strategies involves targeting the exchanges where crypto-assets are often held. Many debtors choose to store their assets on exchanges, such as Binance, Coinbase or Kraken, rather than in cold wallets. These exchanges hold large volumes of digital assets and act as intermediaries for buying, selling and trading crypto. By leveraging third-party debt orders (TPDOs), liquidators can compel exchanges to transfer the assets directly to the liquidator’s designated wallet. This approach has proven effective in ensuring that crypto-assets are not moved or hidden before they can be recovered.

In cases where the direct seizure of assets from exchanges is not possible, Norwich Pharmacal orders (NPOs) have become a powerful tool. These orders require exchanges to disclose transaction metadata, including IP addresses, wallet addresses and details of asset transfers. This information allows liquidators to trace the movement of assets and identify the destination of funds, which may have been hidden or fraudulently transferred. In effect, NPOs break down the anonymity typically associated with crypto-transactions and provide a legal avenue for tracking assets across the blockchain.

Another effective legal tool in asset recovery is the constructive trust argument. This legal doctrine allows courts to rule that assets held by a third party, such as an exchange, are held in trust for the rightful owner or creditor. If crypto-assets have been fraudulently transferred or stolen, liquidators can argue that the assets are no longer the debtor’s property, but are instead held in trust for the creditors. Courts have increasingly embraced this argument, enabling liquidators to recover crypto-assets even if they have been moved to third parties.

By using these legal instruments and collaborating with exchanges, insolvency practitioners have developed a robust toolkit for asset recovery. These strategies have already been successfully applied in numerous high-profile insolvency cases, proving that while asset recovery in the crypto space is challenging, it is not insurmountable.

Legal instruments like TPDOs and NPOs are only effective if you know where to look. Consequently, the modern liquidator must work in tandem with forensic blockchain specialists. Before a single legal letter is sent, forensic teams utilise ‘clustering’ heuristics to de-anonymise wallet addresses, linking a debtor’s cold storage to a know-your-customer (KYC)-verified account on a centralised exchange. It is this combination of on-chain reconnaissance and off-chain legal enforcement that allows liquidators to pierce the veil of anonymity.

Conclusion

The era of questioning the legitimacy of crypto-assets in the context of insolvency is over. The era of aggressive enforcement has begun. While the cryptographic nature of these assets presents unique barriers, the legal system has proven remarkably adaptable, evolving from basic property recognition to the use of sophisticated tracing and coercion strategies.

The future of recovery lies in the tightening net of international cooperation. As the ‘off-ramps’ for cashing out crypto become heavily regulated and centralised exchanges cooperate more readily with cross-border insolvency protocols, the places for debtors to hide assets are shrinking. The message to creditors is clear: the code may be unbreakable, but the individuals and intermediaries controlling it are within the reach of the law.