A Whole New World – Hong Kong Court Declares Crypto Assets Are Property and Can Be Held in Trust | Hogan Lovells

Crypto exchange

As of January 2015, Gatecoin, a Hong Kong company, operated a cryptocurrency exchange platform. To access and use the platform, a customer had to open and register an account with Gatecoin and deposit cryptocurrencies and/or fiat currencies (such as US dollars and pounds) which could then be used for trading or withdrawals. Gatecoin also engaged in cryptocurrency trading itself, including trading with its clients. The company was wound up by the court on 13 March 2019 and joint and several trustees were appointed the following day. The value of the cryptocurrencies on the exchange was in excess of HK$140 million as of 31 October 2022.

The joint and several liquidators of Gatecoin applied under section 200(3) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (CWUMPO) for directions regarding the characterization of cryptocurrencies held by the company as well as for the allocation of currencies , including fiat currencies, to its customers.

The liquidators had contacted 102,600 creditors, but only 1,132 of them had provided proof of debt, representing 75 percent of the amount owed to creditors. The liquidators sought guidance on whether the cryptocurrencies held should be deemed to be held on trust for the customers or, failing that, the digital assets should be made available to the general creditor body.

Linda Chan J began by reviewing the content of blockchain technology and cryptocurrencies, the types of digital wallets operated and controlled by Gatecoin and the way digital assets are transferred from one wallet to another in the course of business.

To agree

The liquidators had identified three different sets of terms and conditions (T&Cs) which were in force at different periods of time, the assumed “2016 T&C”, the “Trust T&C” and the “2018 T&C”. Those who had signed the 2016 T&C were described as “Group A” customers, those who had signed the Trust T&C, “Group B” customers and those who had signed the 2018 T&C, “Group C” customers.

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The liquidators held that only the terms of the Trust T&C had the effect of creating a trust over the currencies for the benefit of Group B customers. Linda Chan J said that in her view the issue of whether the currencies were held by Gatecoin on trust for the customers should be determined by interpreting the terms of the 2018 T&C as the 2018 T&C had replaced the Trust T&C.

Customers who had signed up for other terms and conditions were required to acknowledge and agree to the 2018 Terms before they could continue to access and use Gatecoin’s website. She saw no reason why the court should ignore the contractual agreement reached between the parties and let the customers rely on the terms of the Trust T&C.

Although one could not rule out the possibility that there may be some customers who had registered their accounts before the 2018 T&C came into force and did not access or use the platform from March 2018 until the date of Gatecoin’s liquidation (so they did not accept or accept the terms of the 2018 T&C), on the facts it was unclear whether there were any such customers.


Section 197 of the CWUMPO imposes an obligation on a liquidator to take into custody all “property” upon a winding-up order. The issue therefore (which we predicted was likely to arise in an insolvency situation in our previous notice Into the Unknown – cryptocurrency is property says English court in extortion dispute) was whether cryptocurrency fell under the meaning of “property”. Since “property” is not defined in the CWUMPO, the court turned to the broad definition set out in Section 3 of the Interpretation and General Clauses (Cap.1).

In Hong Kong, courts have granted temporary proprietary injunctions over cryptocurrencies without any party suggesting that cryptocurrencies were not “property” (see Hogan Lovell’s notice Cryo-currency? Hong Kong Court grants freezing ban on bitcoins).

In England and Wales the court is i AA v Persons Unknown [2019] EWHC 4556 (Comm) had argued that bitcoin met the four criteria of being definable, identifiable by third parties, capable of being assumed by third parties and having some degree of permanence (again see Hogan Lovell’s notice Into the Unknown – cryptocurrency is property says English court in extortion dispute). Courts had reached similar conclusions in the BVI, Australia, New Zealand, Singapore, Canada and the United States (US).

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Linda Chan J noted that “like other common law jurisdictions, our definition of ‘property’ is an inclusive one and intended to have a broad meaning.” The court believed it was appropriate to apply and follow the reasoning adopted in other jurisdictions that cryptocurrency was “property” and was capable of forming the subject of a trust.


While the court determined that cryptocurrencies are capable of forming the subject of a trust more generally, it found on the facts of this particular case that a trust had not been established. The court assessed the three essential prerequisites for a trust to be established – certainty of object, object and intention.

Subject material

Linda Chan J found that there was sufficient security for the contents, despite the fact that the assets were placed in a common pool. There was a “compelling reason” for the court to draw an analogy between cryptocurrencies with a trust over shares or securities, as “in either case the right conferred on the beneficiary would not depend on the precise identification of the asset held”.

On the basis that a trust can exist over a proportionate share of all cryptocurrencies, “the object of the trust vis-à-vis each customer is sufficiently secure, as the account balance represents the share of the cryptocurrencies in which such customer has a beneficial interest in the pool.”


A trust will be valid as long as there was no conceptual ambiguity or uncertainty in the definition of the class of beneficiaries. Here there was certainty of purpose, as the trust beneficiaries and the extent of their claims could easily be seen from the exchange ledger.


Whether a trust had been created depends on the mutual intention of the parties, a question “to be determined by an objective assessment of the terms of the agreement or relationship (between the parties) with reference to that property”. Here, the court held that the terms of the 2018 T&C showed that there was no security of intent to create a trust over the cryptocurrencies held by Gatecoin.

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The 2018 T&C contained no express trust statement and, on the contrary, made it clear that the currencies were not held in trust for customers. Furthermore, two clauses in the 2018 T&C expressly disclaimed any fiduciary relationship between Gatecoin and the customer.

All the cryptocurrencies deposited by the customers were not segregated but were transferred to and merged with others. Gatecoin was able to use the cryptocurrencies held in wallets it controlled in any way it saw fit, including for the purpose of trading itself. Cryptocurrencies it held were treated as assets in the audited accounts, while “customer deposits” were treated as liabilities.

Separately, a Quistclose trust appeared to have arisen in favor of Gatecoin, in respect of amounts it had advanced to a market maker for the purpose of purchasing cryptocurrencies on Gatecoin’s behalf, in much the same way that such a trust would be imposed . fiat is used to acquire cryptocurrencies.

Final thoughts

The decision should provide Hong Kong insolvency practitioners with greater clarity regarding the nature and breadth of a company’s digital assets in a liquidation scenario. The confirmation that holdings of cryptocurrencies constitute “property” on a par with other intangible assets such as stocks and shares brings Hong Kong in line with other common law jurisdictions whose courts have already ruled on the matter.

The rejection of claims by account holders that their assets were held for them by Gatecoin on trust serves once again to point out the importance of the contractual trade made between the parties, even as the most recent legal points are settled.

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