Background

Gatecoin Limited, a Hong Kong-based cryptocurrency exchange, suffered a cyberattack in 2016, resulting in the loss of approximately US$2 million. The company was wound up in 2019. The appointed liquidators sought the court's guidance on whether cryptocurrencies could be considered "property" and held on trust.

In Re Gatecoin Ltd (in liquidation) [2023] HKCFI 914, the Court of First Instance confirmed that cryptocurrencies can be held on trust. Customers who had agreed to the earlier Terms & Conditions (the Trust T&C), which included an express trust declaration, were found to have proprietary claims over their cryptocurrencies. This entitled them to priority over unsecured creditors. By contrast, customers who accepted only the 2018 Terms & Conditions (the 2018 T&C) were deemed to hold mere contractual claims, as the Trust T&C had been superseded (see our article here).

Decision

The recent judgment, Re Gatecoin Ltd (in liquidation) [2025] HKCFI 493, addressed claims by non-consenting customers (NCCs) who argued they never accepted the 2018 T&C. These NCCs registered their accounts before the 2018 T&C took effect and did not access the platform after March 2018. They contended that any post-March 2018 activity was due to automated processes or third-party actions.

Classification of NCCs

The court identified seven scenarios to classify NCCs based on their transactions. "TRX", "XJP", "ARC", "SAT", "GEN" and "OTC" each represent a type of cryptocurrency:

• Referral rewards: Customers receiving free cryptocurrencies as referral rewards without accessing the platform are NCCs.
• TRX and XJP delisting: Manual updates by Gatecoin deducted TRX and XJP from accounts without platform access, making these customers NCCs unless they logged in to withdraw TRX.
• Initial coin offerings (ARC and SAT): Subscription was done before 2018 T&C came into effect, but cryptocurrencies were deposited after, qualifying them as NCCs.
• Cryptocurrency mining: Cryptocurrencies deposited by third-party miners without platform access, making these customers NCCs.
• Private sale of GEN: Subscriptions to GEN only started after March 2018, so these customers must have accepted the 2018 T&C and are not NCCs.
• Limit orders: Orders executed when target prices were met. These customers are not NCCs unless they prove the orders were placed before the 2018 T&C took effect.
• OTC trades: Customers claiming face-to-face or phone transactions but provided no evidence are not considered NCCs.

Beneficial interest and allocation

The court held that the NCCs are beneficial tenants-in-common that share the cryptocurrency pool proportionally, in line with the Trust T&C, which described pooled wallets and user ownership interests.

Meeting NCCs' trust claims

The court outlined two scenarios:

• When there is no shortfall, Gatecoin must return the equivalent amount of cryptocurrency to each NCC, deducting the liquidators' administration costs. If it is impracticable to return the cryptocurrencies to the NCCs in specie, the liquidators may sell the cryptocurrency and use the proceeds to meet NCCs' claims.
• In cases of shortfall, the court endorsed the "pari passu ex post facto" method, distributing remaining assets proportionally among NCCs based on account balances.

Conclusion

This landmark ruling affirms the legal recognition of cryptocurrencies as trust property and provides a structured approach for their distribution in insolvency, reinforcing the legal system's adaptability to digital assets.

Acknowledgements to Trainee Solicitor Elaine Ng for research and contribution to this article.