The High Court of Hong Kong has adopted a groundbreaking decision decision recognizing cryptocurrency as a form of property, marking the first time such a ruling has been made in the city-state.
The verdict came in a court case involving Gatecoin Limited, a national crypto exchange that operated between January 2015 and its eventual closure four years later.
According to an analysis of the decision published by law firm Hogan Lovells, Judge Linda Chan, who presided over the case, said that cryptocurrency has ownership attributes.
The court concluded that it was reasonable to adopt the same reasoning used by other jurisdictions that recognize crypto as property and therefore could be subject to a trust agreement. The move clarifies the legal status of cryptocurrency in Hong Kong and paves the way for its wider adoption and use in the city-state.
Chan further stated,
Like other common law jurisdictions, our definition of “property” is inclusive and intended to have a broad meaning.
Additionally, Hogan Lovells said the recent ruling could help insolvency practitioners in Hong Kong better understand how to manage digital assets. The move aligns Hong Kong with other jurisdictions that also consider crypto as property, such as stocks or real estate.
Mainland China has issued some comparable judgments, while the US Internal Revenue Service considers cryptocurrency to be taxable property. In the UK, a government-sponsored legal commission found that existing laws in England and Wales can categorize cryptocurrency as a form of property.
Better treatment of crypto assets by companies
Gatecoin has announced its shutdown and liquidation after attempting to recover disputed funds from a former payment service provider. During the liquidation process, the appointed liquidators sought instructions from the court as to whether the cryptocurrency held by Gatecoin should be considered property held in trust.
If there was no trust, the liquidators questioned whether the digital assets should be made available to general creditors. In October last year, the exchange held up to HKD 140 million ($17.8 million) worth of cryptocurrency.
After failing to recover lost funds following a dispute with a payment service provider, Gatecoin, which operated from 2015 to 2019, was ordered to cease trading and go into liquidation.
Hogan Lovells’ report suggested,
While the court determined that cryptocurrencies are subject to a trust more generally, on the facts of this particular case, it concluded that a trust had not been established.
The report further said the decision would significantly help Hong Kong liquidators. Indeed, it would provide them with increased clarity and understanding regarding the proper treatment of digital assets held by companies, especially during liquidation proceedings.
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