Tracing the Invisible: Ownership and Recovery of Digital Assets in Insolvency

Since Bitcoin's launch in 2009, digital assets such as cryptocurrencies, stablecoins, tokenised securities, and non-fungible tokens (NFTs) have evolved from technological curiosities into mainstream financial products. Their rapid integration into global markets has tested – and in some respects reshaped – long-standing concepts of property, ownership, and enforcement, confronting insolvency practitioners with unprecedented legal and operational challenges.

This shift is no longer confined to crypto markets. Tokenisation is increasingly extending to conventional financial instruments. As these assets migrate onto digital infrastructure, so too may the mechanics of corporate failure change. For example, the US Depository Trust & Clearing Corporation, which oversees more than $114 trillion in securities, plans to launch tokenisation services in October 2026. The service will enable securities including Russell 1000 equities, major index ETFs, and fixed-income assets to be represented and transferred through approved digital wallets while retaining their underlying entitlements.¹ For restructuring professionals, the central issue is no longer simply what happens to crypto when a company collapses, but what happens when entire portions of a balance sheet sit on distributed ledgers.

Recent legislative developments, notably the UK's Property (Digital Assets etc) Act 2025 (PDAA)² and the EU's Markets in Crypto-Assets Regulation 2023 (MiCAR), signal growing formal recognition of digital assets within established legal frameworks. Common-law courts have likewise begun to extend proprietary remedies into the digital sphere. Progress, however, remains incremental and uneven. Uncertainty persists where assets are held through intermediaries, transferred across borders, or become entangled in insolvency proceedings. In these scenarios, the decisive questions are not simply whether a digital asset constitutes property, but who owns it, whether it forms part of the insolvency estate, and whether it can be recovered for the benefit of creditors.

This article examines the evolving legal landscape governing digital assets, focusing primarily on English and EU law. From an insolvency practitioner's perspective, the problem can be framed through four sequential questions:

1. what is the asset, and where is it;
2. who owns it, and does it form part of the insolvency estate;
3. how can it be preserved, traced, and recovered; and
4. how should it ultimately be valued and distributed?

The following analysis considers these questions through, respectively, asset identification and ownership; intermediary custody and proprietary rights; domestic and cross-border recovery mechanisms; and the practical challenges of valuation and distribution.

1. Identifying the asset: why do digital assets present distinctive tracing and enforcement challenges?

Digital assets unsettle the traditional assumptions about property, location, and enforcement on which insolvency administration typically depends. Their decentralised nature means that, unlike physical assets, they have no universally accepted or readily ascertainable situs and can exist “nowhere and everywhere at the same time”.³ This presents unique difficulties in private international law. The absence of a settled lex situs, together with divergent approaches to the legal characterisation and regulation of digital assets,⁴ complicates the identification of both the appropriate jurisdiction⁵ and the law governing proprietary rights and enforcement.⁶ These uncertainties are exacerbated where jurisdictions adopt different territorial connecting factors or characterise the same asset differently. The resulting legal fragmentation creates scope for forum shopping, parallel proceedings, and inconsistent outcomes, undermining the orderly and predictable administration of cross-border insolvencies.

Speed and fungibility compound these difficulties. Transactions can settle instantaneously, while digital assets can cross borders without passing through conventional intermediaries. Privacy-enhancing technologies such as mixers, chain-hopping, and privacy coins further obscure ultimate beneficial owner identification. The result is a striking asymmetry: the blockchain may provide a transparent record of an asset's movements, yet the identity of the person or entity controlling it remains concealed.⁷

Ownership is mediated by private keys controlling pseudonymous wallet addresses rather than traditional title documents.⁸ Control, economic benefit, and legal title may therefore reside in different hands. A complete tracing exercise must therefore resolve three distinct questions: where the asset is recorded on-chain; who controls it; and who is legally or beneficially entitled to it. This radical dematerialisation renders digital assets considerably more difficult to identify, trace, and enforce against than conventional forms of property.

2. Classifying ownership: do digital assets constitute property under English law – and what happens when they are held by intermediaries?

English law now recognises cryptoassets as property capable of supporting proprietary remedies, security interests, and protection in insolvency. Early decisions, including AA v Persons Unknown [2019],⁹ established that Bitcoin could constitute property, enabling the grant of proprietary injunctions over misappropriated assets. Subsequent decisions,¹⁰ including the UK's first fully contested cryptoasset trial in D'Aloia v Persons Unknown Category A & Ors [2024],¹¹ together with the UK Jurisdiction Taskforce's 2019 Legal Statement,¹² have reinforced this position.

The PDAA, in force since December 2025, provides statutory certainty by confirming that an asset is not precluded from being property merely because it falls outside the traditional categories of choses in possession and choses in action.¹³ Rather than displacing the common law, this legislation leaves room for its continued development in response to the distinctive characteristics of digital assets.¹⁴ Comparable recognition can be found in New Zealand,¹⁵ Singapore,¹⁶ and Hong Kong.¹⁷

Recognition as property does not, however, resolve ownership when assets are held through exchanges or custodians. Where an intermediary controls the private keys, the nature of the customer's interest becomes critical: does the customer retain a proprietary interest in the underlying asset, or merely a contractual claim against the intermediary? The distinction is decisive in insolvency: a proprietary interest will generally fall outside the intermediary's estate, whereas a purely contractual claim will ordinarily rank as unsecured.

US bankruptcy proceedings involving Celsius and Voyager illustrate the point. In each case, the treatment of customer assets turned materially on the contractual arrangements governing the relevant accounts, with certain customers left with unsecured claims rather than proprietary claims in the underlying cryptoassets. Contractual terms, custody structures, and applicable insolvency law determine recoverability, not the blockchain itself.

3. Preserving and tracing value: what proprietary remedies are available?

English courts have adapted traditional tools to manage digital assets with considerable flexibility and creativity. Proprietary injunctions, worldwide freezing orders, disclosure orders against exchanges and marketplaces,¹⁸ and tracing remedies (including against persons unknown) have all been deployed.¹⁹ Disclosure orders are particularly significant because they can compel intermediaries to connect pseudonymous on-chain activity to real-world identities. Procedural rules have likewise evolved, with service in the UK, Hong Kong, and New York permitted via email, exchange-registered contact details and, in exceptional cases, blockchain-based mechanisms such as NFT airdrops.²⁰

The English Court of Appeal's decision in Tulip Trading [2023] left open the possibility that blockchain developers may owe duties to assist in recovering misappropriated assets, given their ability to influence protocol-level changes. Although the court did not decide whether such fiduciary obligations exist, the judgment shows a willingness to test traditional concepts of liability against technologically dispersed forms of control.²¹

These domestic remedies operate against a broader regulatory backdrop. The EU has adopted a comprehensive regulatory approach: MiCAR imposes custody, record-keeping, operational resilience, and transparency requirements on cryptoasset service providers.²² The UK is similarly moving cryptoasset activities, including trading platforms and custody services, towards an extensive financial services regulatory framework under FSMA, although the new regime is not expected to come into force fully until 25 October 2027. These measures are principally preventative: by strengthening custody and transfer controls ex ante, they aim to make assets easier to identify and preserve before they can be dissipated. Japan and South Korea have pursued similar infrastructure-focused reforms,²³ informed in part by high-profile exchange failures such as Mt. Gox.²⁴

At the international level, recent initiatives include the International Union of Judicial Officers' Global Code of Digital Enforcement (2021), UNIDROIT's Principles on Digital Assets and Private Law (2023), and UNCITRAL's Asset Tracing and Recovery in Insolvency Proceedings: UNCITRAL Toolkit and Background Notes (2025). Their significance fundamentally lies in whether they can facilitate enforcement when the relevant wallet, intermediary, or defendant is located abroad.²⁵ Although these instruments promote international cooperation, urgent interim relief, and transnational recognition, their practical impact remains dependent on domestic implementation.²⁶

4. Valuing and distributing the asset: how should digital assets be administered in insolvency?

Identification is the first hurdle. Insolvency practitioners must determine whether assets form part of the insolvency estate or are held on behalf of customers or other third parties. Pooled wallets, custodial arrangements, and pseudonymous transactions often require close analysis of contractual arrangements, blockchain records, and applicable trust principles. The exercise is therefore legal as well as technological: identifying an address does not establish ownership, and control of a private key does not necessarily determine beneficial entitlement.

Valuation is equally challenging. Extreme volatility and price disparities across exchanges mean that the valuation date and methodology can significantly affect recoveries.²⁷ Some assets, such as NFTs or newly launched tokens, may lack an immediate trading market. Conversion into fiat can provide greater price certainty but crystallises value at the point of sale and incurs transaction costs. Conversely, in specie distribution preserves potential upside while transferring the associated market risk to creditors.²⁸ This choice also raises concerns of equal treatment where creditors receive assets with different volatility or liquidity characteristics. Officeholders must therefore balance commercial practicality against the principle of pari passu distribution among creditors.

Commingling, cross-border transfers, and lost keys create additional obstacles. The practical problem is most acute where technological control is lost entirely. The collapse of Canadian exchange Quadriga – where approximately C$190 million “turned into digital dust” following the loss of the private keys to certain cold wallets – illustrates that identifying an asset is of little practical value if control over it cannot be recovered.²⁹

Blockchain analytics and digital forensics are increasingly important complements to legal process, enabling insolvency practitioners to map transaction paths (including for potential clawback claims),³⁰ cluster wallet addresses, and locate assets across jurisdictions. AI-assisted analytics may further help officeholders to detect anomalous transaction patterns across large volumes of blockchain and contractual data, although any evidential or procedural reliance would require appropriate validation and oversight.

Beyond tracing and recovery, blockchain infrastructure could eventually facilitate elements of on-chain enforcement through smart contracts.³¹ For now, however, such mechanisms remain more aspirational than operational. Technology cannot replace legal judgment: its use must remain proportionate and consistent with privacy, evidential, and procedural safeguards. Effective administration necessitates the alignment of legal title, technological control, and economic value so that assets can be recovered and distributed to those entitled to them.

Conclusion

Digital assets are no longer peripheral to the financial system, yet the legal framework governing them remains incomplete. Developments in England and the EU demonstrate that traditional concepts of property and private international law can adapt to the digital environment. Difficult questions concerning ownership structures, cross-border enforcement, and insolvency treatment nevertheless remain unresolved. As digital assets become more deeply embedded in commerce, pressure on that framework will only intensify.

For insolvency practitioners, the practical test is therefore sequential: can the asset be identified; can its legal and/or beneficial owner be established; can it be preserved, traced, and recovered; and, once recovered, can it be valued and distributed fairly? Prompt investigation of these questions, together with careful consideration of available recovery and enforcement options – from selecting the appropriate forum to engaging analytics firms and securing interim relief – is critical to preserving value.³²

For policymakers, regulators, and the courts, the task is not to invent an entirely new body of law, but to ensure that existing principles can operate effectively in a borderless setting. The law has begun to catch up with technology; the real question is whether it can keep pace.

About The Author

Catherine Bar is an English-qualified restructuring and insolvency associate who has practised in the London offices of Shearman & Sterling LLP and Willkie Farr & Gallagher LLP, including a secondment at the Intercontinental Exchange. She has advised a broad range of stakeholders – including states, funds, banks, corporates, noteholders, clearing houses, exchanges, trustees, and insolvency practitioners – on high-value, cross-border matters spanning debt finance, consensual restructurings, enforcement actions, and insolvency legislative projects.

A member of the International Women's Insolvency & Restructuring Confederation (IWIRC), International Bar Association (IBA), and Thought Leaders 4 FIRE, Catherine has published award-winning research on cryptoasset regulation, digital asset enforcement, and liability management exercises, including as the winner of the 2026 IBA Insolvency Section Scholarship. Her research examines how corporate insolvency law should adapt when conventional assumptions about value, jurisdiction, and creditor protection no longer hold, particularly at the intersection of private credit, restructuring practice, financial regulation, and borderless assets.

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