Cryptoassets, hot and cold wallets, and a liquidation

Was cryptocurrency ‘property’ of a company in liquidation, and was it held on trust for the accountholders?

Cryptopia Ltd (in liq) originated as a ‘hobby’ which in 2014 was formed as a cryptocurrency trading exchange with ‘a short but tumultuous history’. It went into liquidation in May 2019 after suffering a serious hack and the loss of some NZ$30 million of cryptocurrency from its exchange.

Issues for the liquidators arose over who owned the remaining NZ$170m in cryptocurrency under the control of Cryptopia and depending on the answer, how any funds should be distributed.

The liquidators therefore applied to the New Zealand High Court for directions[1] as to the categorisation and distribution of assets in the liquidation.

The initial matter for directions was a determination of ‘just what are the assets in the liquidation’. That would then be followed by an application for further directions as to proposed methods of distribution of the company’s assets.

The hacking of Cryptopia occurred in January 2019 with the NZ$30m in cryptocurrency withdrawn from the exchange using the private keys for the currencies in question, such that Cryptopia was not able to reverse the transactions. The hack is the subject of an ongoing police investigation but this is not as yet resolved.

As the Judge explained, the liquidators are in the process of ascertaining the amount of cryptocurrency that was stolen and the amount that was left in Cryptopia’s ‘wallets’.[2]

‘Once that process is completed, the liquidators will be able to carry out a reconciliation exercise between the actual cryptocurrency holdings that the company controls or owns and the accountholders’ account balances recorded in the SQL database. The results of this process will assist the liquidators in determining not only what is available for distribution, but also the proportion of account balances or claims that can be distributed or paid once the present application is determined’.


The Court held that cryptocurrency can be property, based upon the standard definition under NZ law, and several settled criteria – that it is ‘definable, identifiable by third parties, capable in its nature of assumption by third parties, and that it have some degree of permanence or stability’.[3]


‘are a type of intangible property as a result of the combination of three interdependent features. They obtain their definition as a result of the public key recording the unit of currency. The control and stability necessary to ownership and for creating a market in the coins are provided by the other two features – the private key attached to the corresponding public key and the generation of a fresh private key upon a transfer of the relevant coin.’ [120]

The Court dismissed the two arguments that are most commonly raised to suggest that cryptocurrencies do not have the status of “property”:

  • that the common law recognises only two classes of personal property: tangibles and choses in action and that cryptocurrencies are said to be neither – a ‘red herring’, as the Judge said; and
  • that cryptocurrencies might be said to be a form of information and that information is not generally recognised as a form of “property” – ‘simplistic’.

Held on trust

In addition, cryptocurrency as property can be and was in this case held on trust – ‘the various cryptocurrencies were at equity held on separate express trusts by Cryptopia for all of the accountholders’: [187].

See Ruscoe v Cryptopia Limited (in liquidation) [2020] NZHC 728.

Other readings

In the Australian insolvency law context, readers might be assisted by Taking and enforcing security over cryptocurrency, David Kreltszheim (2019) 20(1) INSLB 13; and Insolvency in the Digital Age, Myles Bayliss, (2020) INSLB [forthcoming].

See also AFSA’s Dealing with cryptocurrency in a bankrupt estate.


[1] Section 284(1)(a), NZ Companies Act 1993

[2] ‘The customer’s deposit would be made into a “hot wallet” (a wallet connected to the internet) for the cryptocurrency in question. Once deposited the currency could be left in the hot wallet to meet withdrawal requests from other users or be transferred to a “cold wallet” (a wallet not connected to the internet)’: [22].

[3] See National Provincial Bank Ltd v Ainsworth. [1965] UKHL 1; [1965] AC 1175 (HL) at 1247–1248. The ‘insolvency’ definition of property under NZ law is comparable with that in Australia.

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2 Responses

  1. Good Afternoon, Murray Legal Services,

    If you are in a position to help with an investment gig that went wrong on a forex trading platform.
    And a liquidation process is applied. Can you help me understand it?


    Sharmila 0458759904

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