When a crypto exchange suspends withdrawals or a custodian files for insolvency, the clock for creditors starts immediately. Assets that sit on-chain can move in seconds; assets that sit with an insolvent estate can be dissipated almost as fast. The question every business creditor faces is the same: what do I do in the next twenty-four hours, and what do I do in the next twenty-four days? This guide answers both, step by step, with the cross-border legal basis at each stage.
Filing a creditor claim in a crypto insolvency requires a creditor to act on two tracks simultaneously – the legal insolvency process and, where assets can still be traced on-chain, a parallel asset recovery action. The insolvency track protects your place in the distribution waterfall. The recovery track can freeze assets before they disappear. Missing either track in the opening hours can cost a business its entire claim.
The sections below walk through each step: securing the record, commencing the tracing analysis, filing the formal proof of debt, pressing for disclosure from exchanges and custodians, and managing the cross-border complications that arise in almost every crypto collapse. A micro-matter from our practice illustrates the process in action.
Step 1 – Secure Your Record Before Anything Else
The first action for any business creditor is to preserve every piece of evidence that documents the claim: transaction records, account statements, confirmation emails, wallet addresses, contract terms and any correspondence with the insolvent entity. This evidence forms the basis of both the formal proof of debt and any on-chain tracing that follows.
Act within hours, not days. Insolvent exchanges routinely restrict portal access once proceedings are announced. Data that is available at noon may be unavailable by close of business. Download everything your portal permits. Request a formal statement of account by email, creating a timestamped record that the request was made.
The cross-border note at this step matters. If the exchange or custodian is domiciled in a different jurisdiction from your own – as is common in crypto insolvencies, where the operating entity, the user base and the holding entity can sit in three separate countries – obtain legal advice in the jurisdiction of domicile immediately. The insolvency regime that governs your claim is determined by where the estate is being administered, not where you are.
Common mistake at Step 1: waiting for official communications from the administrator. In the early hours of a crypto collapse, the administrator is not yet appointed or is overwhelmed. Creditors who wait for instruction routinely lose access to records they needed to preserve themselves.
Step 2 – Commission On-Chain Tracing Analysis Without Delay
On-chain tracing – the forensic reconstruction of asset flows using public blockchain data – is the foundation of any recovery action that goes beyond the formal insolvency. It identifies where the assets went, which wallets received them and, critically, whether any assets remain at addressable locations that a court can reach.
The Travel Rule (the obligation, under FATF Recommendation 15, to pass originator and beneficiary data with a virtual-asset transfer) means that regulated exchanges will hold identity data tied to many of the wallet addresses that appear in the trace. That data is accessible via a court-ordered disclosure – but only if the tracing identifies the exchange and the timeframe precisely enough to support a disclosure request.
Professional forensic analysis generates a report that meets the evidentiary standard required by courts in England and Wales, the DIFC Courts, Singapore and Hong Kong – the principal common-law forums for crypto asset recovery. That report should identify transaction hashes, wallet clusters, exchange deposit addresses and any interaction with sanctioned or blacklisted addresses. Issuers of major stablecoins such as USDT and USDC hold contract-level freeze authority over their tokens; a forensic report that documents misappropriated stablecoin balances can support a freeze request to the issuer, acting on a law-enforcement referral or a court order.
In our cross-border practice, we have seen cases where a forensic report completed within forty-eight hours allowed counsel to apply for a freezing order before assets bridged to a second chain. The same cases where tracing began after a week found the assets had already been layered through multiple wallets and partially converted to privacy-enhanced instruments, dramatically reducing the recoverable amount.
Common mistake at Step 2: treating on-chain tracing as an afterthought to the insolvency filing. The two processes are not sequential; they run in parallel. Creditors who focus exclusively on the proof of debt while assets are moving on-chain often find that the estate available for distribution has shrunk considerably by the time the administrator takes control.
To discuss scoping a tracing analysis for your situation, contact OBOLUS at info@oboluslaw.com. The process above describes the standard path. Your facts – the entity, the asset type, the jurisdictions involved – change the analysis materially.
Step 3 – Identify Which Insolvency Regime Governs Your Claim
The governing insolvency regime determines the form and deadline for your proof of debt, the priority of your claim relative to other creditors and, critically, whether client assets are treated as property of the estate or as trust assets held outside it. Getting this wrong at the outset can forfeit rights that cannot be reinstated.
Crypto insolvencies are characteristically multi-jurisdictional. An exchange may be incorporated in the BVI or Cayman Islands, operate its technology from the EU, hold user funds in Singapore and have its principals in Dubai. Each of those jurisdictions may assert a basis for insolvency proceedings. In practice, the controlling proceeding – the one that appoints the administrator or liquidator and sets the bar date for claims – is often commenced in the jurisdiction of incorporation or the jurisdiction where the primary business assets sit.
The BVI Financial Services Commission supervises entities incorporated under the BVI framework, and the Cayman Islands Monetary Authority (CIMA) covers Cayman entities, but the insolvency proceedings themselves are conducted through the relevant courts of those jurisdictions. Courts in England and Wales regularly recognize and lend assistance to BVI and Cayman liquidations as part of common-law cross-border insolvency cooperation. The DIFC Courts in Dubai operate their own insolvency regime and have shown increasing engagement with digital-asset matters, most recently in matters involving virtual-asset service providers regulated under VARA.
If parallel proceedings exist in multiple jurisdictions – as occurred in several high-profile crypto collapses – a creditor must consider whether to file in each or to rely on recognition of the main proceeding. Omitting a filing in a jurisdiction that ultimately controls significant assets can mean missing out on distribution from that pool entirely.
Common mistake at Step 3: assuming that the exchange's terms of service determine the governing law for insolvency purposes. Choice-of-law clauses in user agreements are frequently overridden by mandatory insolvency rules in the jurisdiction of the actual administration.
Step 4 – Are Your Assets Estate Property or Do They Sit Outside the Estate?
Whether the assets you deposited with an exchange or custodian form part of the insolvent estate – and are therefore subject to the general creditor waterfall – or whether they are held on trust for you and thus sit outside the estate is arguably the most consequential legal question in a crypto insolvency.
Courts in leading common-law forums have increasingly recognized that crypto assets can constitute property and can be subject to proprietary claims. In AA v Persons Unknown [2019], the English courts confirmed that crypto assets are property capable of being subject to a freezing order – a foundation for the argument that assets held by a custodian on your account may be trust assets rather than the custodian's own property. The analysis is fact-specific and depends on the contractual structure, the manner in which the custodian held and co-mingled assets, and the applicable insolvency regime.
If assets are trust property, a creditor may be entitled to trace and recover them ahead of unsecured creditors. If they are estate property, the creditor ranks alongside other unsecured claimants and is subject to the priority rules of the applicable insolvency law. The difference between these two positions can be the difference between full recovery and a fraction-of-a-cent distribution.
The cross-border dimension: the trust analysis is conducted under the law governing the custodian relationship. That is not always the law the creditor expects. A Singapore-regulated custodian is subject to MAS segregation and safeguarding obligations under the Payment Services Act; a VARA-licensed custodian in Dubai is subject to VARA's custody rulebook requirements. Each regime has its own view on asset segregation, and the compliance position of the insolvent entity under its applicable regime will directly influence whether a proprietary claim succeeds.
Common mistake at Step 4: accepting the administrator's initial characterization of all client assets as estate assets without challenge. A proprietary analysis by independent counsel often reveals grounds for a trust argument that the administrator has not conceded and will not volunteer.
Step 5 – File the Formal Proof of Debt Accurately and on Time
Filing the proof of debt is the mechanical step that secures your place as a recognized creditor in the administration or liquidation. The proof must be filed in the form specified by the court or administrator of the controlling proceeding, by the bar date, and must accurately characterize the nature and quantum of the claim.
Quantum in a crypto insolvency raises a valuation question that does not arise in a conventional insolvency: at what point in time, and at what price, is the claim denominated? An exchange creditor who held BTC in an account may assert a claim denominated in BTC (a cryptocurrency), or in fiat at the petition date, or in fiat at the bar date. The administrator may propose a conversion methodology that does not favor creditors. Challenging that methodology, and filing a proof that preserves the creditor's position, requires careful drafting.
Where a creditor asserts both an unsecured claim (for amounts owed as a general creditor) and a proprietary claim (for specific assets held on trust), both must be included in the proof, with the relationship between them clearly stated. Filing only one type of claim can inadvertently waive or prejudice the other.
In our practice, we regularly advise creditors on proof of debt preparation in proceedings across the BVI, Cayman Islands, England and Wales, and Singapore – forums where the procedural requirements differ in detail, even where the substantive law is similar. Allied counsel in the relevant jurisdiction support filings where local admission is required.
Common mistake at Step 5: understating the claim to avoid complexity, or filing a claim that omits the proprietary element because the creditor was unaware that it was available. Both errors reduce the creditor's recoverable amount and, once filed, can be difficult to correct after the bar date.
If a prior claim was filed without legal review or the bar date is approaching, reach our disputes desk now at info@oboluslaw.com. A second read of the filed proof can surface issues before they become permanent.
Step 6 – Apply for Court-Ordered Disclosure From Exchanges and Intermediaries
Where on-chain tracing identifies that assets passed through a regulated exchange or custodian – including one that is not itself insolvent – a court can order that exchange to disclose the identity and account information of the wallet holder who received the assets. This mechanism, available in England and Wales as a Norwich Pharmacal order (a court order compelling disclosure by a third party who is innocently mixed up in wrongdoing), has been applied directly to crypto exchanges by English courts and by courts in several common-law jurisdictions.
The DIFC Courts in Dubai and the courts of Hong Kong and Singapore have similarly demonstrated a willingness to grant disclosure orders against exchanges domiciled in their jurisdictions or subject to their jurisdiction. In Hong Kong, the Re Gatecoin [2023] decision confirmed that crypto assets are property capable of being held on trust, reinforcing the legal basis for proprietary and disclosure relief. The CFAAR (Crypto Fraud and Asset Recovery) network, launched in London in September 2021, coordinates cross-border recovery actions across multiple forums.
A disclosure application requires: the forensic report identifying the exchange and the assets; evidence of the underlying claim (the insolvency filing, the contractual relationship, or the fraud); and, typically, a supporting witness statement from someone with direct knowledge of the facts. The exchange is then served and has an opportunity to respond before the order is made.
The cross-border note: if the assets traced to an exchange regulated in a jurisdiction where you have no local representation, allied counsel in that forum will need to be engaged to bring the application. Coordinating those applications across multiple jurisdictions simultaneously is operationally demanding but frequently necessary – assets do not respect jurisdictional lines.
Common mistake at Step 6: applying for disclosure before the forensic report is complete or serves notices on the exchange prematurely. A poorly prepared disclosure application alerts the target to the recovery action and can prompt asset movement before the order is served.
Step 7 – Apply for a Freezing Order Where Assets Remain Identifiable
A worldwide freezing order (an injunction freezing a defendant's assets globally, wherever located) is the most powerful interim remedy available to a creditor who can identify recoverable assets before distribution or dissipation. In England and Wales, this relief is available on without-notice application – meaning it can be obtained before the respondent is aware of the proceedings.
The threshold for a freezing order in the English courts is well established: a good arguable case on the merits, a real risk of dissipation, and a balance of convenience that favors the order. English courts have granted freezing orders over crypto assets since at least the decision in AA v Persons Unknown [2019]. The DIFC Courts have also granted freezing orders in support of foreign proceedings, as demonstrated in Trafigura v Gupta [2025] DIFC.
Where a freezing order is obtained, the order typically requires the respondent to disclose all assets above a specified value. Service on a crypto exchange in a third jurisdiction may require the assistance of that jurisdiction's courts via a letter of request or recognition proceedings. Speed is critical: a freezing order served on an exchange while the assets remain in the account is effective; an order served after withdrawal is a document, not a remedy.
For stablecoin balances, the parallel route – an issuer freeze – can operate alongside the court process. Tether and Circle, as stablecoin issuers, hold contract-level freeze authority over USDT and USDC respectively; they generally act on a court order or a law-enforcement referral accompanied by a professional forensic report and, in many cases, a case reference number.
Common mistake at Step 7: delaying the freezing application while the insolvency proof of debt is prepared. The two processes are not in sequence. A creditor can pursue a freezing order against identified third parties who hold misappropriated assets while simultaneously filing in the insolvency of the primary entity.
Parallel Recovery in Action – A Cross-Border Micro-Matter
In a recent matter handled in the past year, a payments company holding a seven-figure balance on a centralized exchange discovered, on the announcement of that exchange's insolvency, that a portion of its assets had been transferred out of its account without authorization in the days before the filing. On-chain tracing, commissioned on the first day, identified the assets at a deposit address on a second regulated exchange operating in a different jurisdiction. Within forty-eight hours, we had instructed allied counsel in that forum to seek a disclosure order against the second exchange while simultaneously filing a proof of debt in the main insolvency proceeding and preparing a freezing application in a leading common-law court. The disclosure order was granted, the identity of the transferring account was confirmed, and the assets were frozen before the account holder could complete a withdrawal. The two proceedings – the insolvency filing and the proprietary recovery action – ran in parallel throughout. The client's recoverable position was materially better than it would have been had either track been delayed by a week.
Related at OBOLUS
- Disputes and asset recovery for digital-asset businesses – our full practice in crypto litigation, recovery and interim relief
- On-chain asset tracing: the disputes angle – how forensic blockchain analysis feeds into legal proceedings
- Corporate bank account opening: the structuring angle – how entity structure affects banking access and insolvency exposure
Addressing the Common Assumption: "Once Funds Leave the Wallet, Nothing Can Be Done"
A common assumption among business creditors approaching a crypto insolvency for the first time is that the pseudonymous character of blockchain transactions makes recovery impossible. That assumption is factually incorrect and, when it leads to inaction, commercially damaging.
Public blockchains are, by design, transparent and immutable. Every transaction is recorded and remains accessible indefinitely. Professional forensic tools, used by the leading blockchain analytics providers and accepted by courts in England and Wales, Singapore, Hong Kong and the DIFC, can reconstruct asset flows with a high degree of precision. The question is not whether the trail exists – it does – but whether the assets have moved to a location from which a court-ordered freeze or disclosure can reach them before they are further converted or withdrawn.
Courts in the leading common-law forums have consistently confirmed that crypto assets are property subject to proprietary claims, freezing orders and disclosure obligations. The legal infrastructure for recovery exists. What defeats creditors is not the absence of remedy but the absence of speed. We move for freezing relief and exchange disclosure while the trail is live – and the trail is measured in hours, not weeks.
FAQ
Can stolen crypto actually be recovered?
Recovery is possible and has been achieved through a combination of on-chain tracing, court-ordered disclosure and freezing orders applied in common-law forums including England and Wales, Singapore, Hong Kong and the DIFC Courts. The outcome depends on how quickly the forensic analysis is commissioned, whether assets remain at an identifiable and reachable location, and whether a court can be moved to act before the assets are dissipated further. Recovery is never guaranteed, but the legal tools are well established and regularly applied.
How fast must I act after a digital-asset theft?
Recovery windows close rapidly. Assets can move between wallets, bridge to other chains or be converted within hours. The critical actions – commissioning forensic tracing, obtaining legal advice on interim relief and notifying any relevant stablecoin issuer – should begin on the same day as discovery, not after internal escalation is complete. Every hour of delay increases the probability that assets reach a location from which recovery is not practically or legally possible within the available timeframe.
Can a court freeze assets held on an exchange?
Yes. Courts in England and Wales, the DIFC, Singapore and Hong Kong have granted freezing orders over crypto assets held on exchanges. A worldwide freezing order obtained in England and Wales can cover assets wherever located, subject to service and recognition in the relevant jurisdiction. The exchange may also be ordered, by separate disclosure application, to identify the account holder associated with specified wallet addresses. Both orders are available on urgent without-notice applications where the risk of dissipation is demonstrated.
OBOLUS is an independent digital-asset law boutique acting only for businesses. We advise exchanges, custodians, token issuers and funds on licensing across more than seventy jurisdictions, on disputes and on-chain asset recovery across more than twenty-five forums, and on the tax, banking and compliance considerations that sit around them. Digital assets are the whole of our practice. We have seen creditors recover seven-figure balances through parallel insolvency and proprietary proceedings – and we have seen creditors lose that opportunity by waiting too long. To discuss your situation, contact info@oboluslaw.com or message us at t.me/oboluslaw.
By Glen Sorensen, Disputes & Recovery Analyst – specialising in cross-border crypto insolvency claims, on-chain asset tracing and interim relief in common-law forums.
This publication is general information about the law and does not constitute legal advice. It is not a substitute for advice tailored to your circumstances. OBOLUS accepts no liability for action taken or not taken on the basis of this material. For advice on your situation, contact info@oboluslaw.com.