The rise of digital assets and cryptocurrency has transformed financial markets, but it has also raised novel legal and practical challenges, particularly in the context of corporate insolvency.
For insolvency professionals, trustees and investors navigating the murky waters of cryptoasset recovery, recent common law authorities provide an important guide toward legal certainty, particularly for questions of ownership, fiduciary obligation and the treatment of unclaimed or misappropriated tokens.
Against this backdrop, the Singapore High Court's recent decision in Re Genesis Asia Pacific Pte Ltd (in liquidation), commonly referred to as Re Taylor, is a pivotal moment in the common law's evolving engagement with digital asset ownership.
The decision, which underscores the importance of clarity in custodial arrangements and offers useful guidance on when a trust over cryptoassets may be inferred or implied, is relevant across jurisdictions that regularly deal with digital asset structures, such as the British Virgin Islands, the Cayman Islands and Bermuda. These offshore centres often host the holding companies, token issuers and custodian structures that underpin crypto exchanges or decentralised finance platforms.
The Singapore High Court in Re Taylor considered whether unclaimed cryptocurrency held by a liquidated exchange could be distributed to customers on the basis that it was held on trust. The joint liquidators of Eqonex Capital Pte Ltd said the assets were either held on express trust (based on the exchange's user agreements) or that a resulting or Quistclose trust could be inferred.
The court applied orthodox trust principles, requiring the "three certainties" of intention, subject matter and objects. Despite the user agreements stating that digital assets "are custodial assets held by the Eqonex Group for your benefit" and that "title … will at all times remain with you," the court found this insufficient to constitute certainty of intent.
The mere fact that assets were segregated and designated for customer use was insufficient to evidence an intent to create a fiduciary relationship. Additionally, the court rejected the existence of resulting or Quistclose trusts due to the absence of a clear purpose or mutual intention. A similar approach was taken by the Hong Kong courts in Re Gatecoin (in liquidation).
This decision is significant for two reasons. First, it demonstrates that courts are increasingly prepared to apply conventional trust and property principles to blockchain-based assets. Second, it highlights the importance of documentation, platform terms and wallet architecture in determining ownership and fiduciary obligations.
For liquidators and trustees, Re Taylor offers a roadmap. Where a trust can be clearly identified, recovered digital assets can be distributed back to beneficial owners or, in some cases, to shareholders through established trust mechanisms. Where no trust exists, these assets may instead be applied in satisfaction of the company's general liabilities.
Asset recovery during liquidation creates legal, technical maze
Recovering digital assets during liquidation is often a multi-jurisdictional and multidisciplinary exercise. The process typically begins with asset tracing, including reviews of internal ledgers, blockchain transactions and exchange accounts to identify and secure relevant wallets.
In jurisdictions such as Singapore, Hong Kong, the British Virgin Islands, the Cayman Islands and Bermuda, liquidators have powerful tools for summoning former officers, compelling document production and initiating proceedings for non-cooperation.
These powers, however, only go so far. In many instances, access to wallets may depend on seed phrases, keys or multifactor authentication devices retained by former insiders.
Liquidator roles are also made difficult by the practical hurdles that necessarily exist with digital and cryptoassets.
These include:
Identifying fraudsters who routinely explo...
Show more...
