No Trust? No Crypto Transfer – Singapore Court

The disposition of unclaimed cryptocurrency during the liquidation of Eqonex Capital Pte Ltd, a digital asset exchange operator, was the subject of a recent historic ruling by the Singapore High Court in Re Taylor, Joshua James and another (Official Receiver, non-party).

In their capacity as liquidators, the applicants requested permission from the court to disburse funds and unclaimed digital assets in the possession of Eqonex Capital to clients through a proposed trust structure. Additionally, they asked that any remaining assets be transferred to the Official Receiver upon the company’s dissolution and that indemnification rights be granted. The case demonstrates the conflict between the legal requirements for creating trusts in cryptocurrency insolvencies and the practical difficulties faced by liquidators in allocating unclaimed assets. The liquidators sought a simplified solution because only a small number of Eqonex’s clients were participating in the recovery efforts. Still, the court placed a higher priority on adhering rigorously to trust law rules.

Court’s Decision: No Trust Established Over Crypto Assets

The application was denied by Justice Aedit Abdullah, who determined that no express, resulting, or Quistclose trust had been established over the cryptocurrency. According to the ruling, unless the agreements specifically transfer title, users maintain complete ownership of cryptocurrencies held on exchanges. Similar disclaimers in terms precluded trust claims at Hong Kong’s Re Gatecoin Ltd (in liquidation) (described further below), which is consistent with global trends. Notably, the user agreement included provisions that confirmed clients retained ownership of their digital assets and that Eqonex Capital had no fiduciary obligations to them.

The ruling emphasised that simple operational controls or custodial arrangements do not create a trust. Because Eqonex Capital had not yet been dissolved and did not possess title to the assets, the court also dismissed the claim that the assets should pass to the Official Receiver by section 213(1) of the Insolvency, Restructuring and Dissolution Act. (read more)

Key Takeaways for Crypto Platforms and Liquidators

This ruling upholds the requirement that digital asset platforms specify asset ownership and fiduciary duties. Given that only a small portion of Eqonex’s users have responded to recovery efforts, it further emphasises the importance of client interaction throughout liquidation procedures.

The Singaporean ruling is similar to Hong Kong’s in Re Gatecoin Ltd (in liquidation), where the court denied recognition of a trust because of clear disclaimers in the conditions. The cryptocurrencies were not to be kept on trust for the account holders, according to the precise terms and conditions that applied to the vast majority of Re Gatecoin (in liquidation) account holders.

Implications for Insolvency Practitioners

The decision provides crucial guidance for insolvency professionals navigating the complex relationship between trust law and cryptocurrency. The rulings in the Eqonex and Gatecoin liquidations underscore a developing common law consensus that crypto platforms must specify the ownership of assets. To ascertain if a trust exists over the pertinent cryptocurrency, liquidators must carefully examine the terms and conditions that the platform sent to each account holder.

If you have any questions, please do not hesitate to contact us.