[Column] Can Staked Virtual Assets Be Recovered If the Business Goes Bankrupt?

Bankruptcy Example Image. Source=Melinda Gimpel/ Unsplash

Author Introduction
Kwon Oh-hoon, Representative Attorney at Cha & Kwon Law Office. Attorney Kwon specializes in digital asset regulatory consulting, exchange-related disputes, and international arbitration. He has served as the overall PM for the research project on the establishment of the Blockchain Basic Act under the Ministry of Science and ICT.

The Seoul Central District Court dismissed a customer's lawsuit demanding the return of virtual assets (digital assets) deposited for staking on August 19 (2025가단100270). The plaintiff had entrusted 4,400 SOL (Solana) to a virtual asset business for staking services. After the company went bankrupt, he claimed the return of 440 SOL from the bankruptcy trustee. The plaintiff argued that his rights to the SOL remained with him and that the company merely acted as an agent for the staking service, thus the SOL should not be considered property to be distributed to the company's creditors.

The court did not rule that the plaintiff had no right to reclaim the SOL itself. However, it viewed that the right was a general bankruptcy claim against the company and should be exercised in the bankruptcy proceedings. The plaintiff's demand was for a 'recovery' of his deposited assets, excluding them from the bankruptcy estate, but the court determined that he should participate in the bankruptcy proceedings alongside other creditors.

Article 424 of the "Debtor Rehabilitation and Bankruptcy Act" stipulates that bankruptcy claims can only be exercised through bankruptcy proceedings. In contrast, Article 407 states that the right to recover property not belonging to the debtor is not affected by the bankruptcy declaration. Recovery does not mean receiving distributions before other creditors, but rather recovering property excluded from the bankruptcy estate that does not belong to the debtor.

Therefore, for recovery to be recognized, it is insufficient to merely establish that the company has an obligation to return; it must also be acknowledged that the property being claimed does not belong to the company. This ruling also indicated that even if it is a claim for the return of a property based on a contractual obligation, it could form the basis for a recovery right if the property does not belong to the company.

The court first determined that SOL is neither a physical object nor a security under civil law. Since it is not a physical object, it rejected the claim for return based on ownership, and since it is not a security, it did not apply the legal principle of commingled securities that recognizes shared interests for customers even if multiple customers' securities are mixed together.

While staking contracts are similar to custodial agreements in that they involve safekeeping, the subject matter is not a physical object, so it was deemed to fall under the category of 'similar atypical contracts to commingled custody.' The plaintiff's right to claim return was explained as a claim arising from the termination of the contract.

The court then focused on the actual operational method of collecting and staking customers' SOL. It concluded that the SOL entrusted by the plaintiff lost its specificity when transferred to the collection account. The Virtual Asset User Protection Act's requirement to hold assets of the same type and quantity as those entrusted also served as a basis for viewing the right to claim return as similar to a claim for specific goods.

Although the terms and conditions stated that rights to digital assets belong to members, the court interpreted this as establishing a future claim for return. Ultimately, it was difficult to recognize the plaintiff's claim as one demanding the return of property not belonging to the company.

One of the most questionable aspects of this judgment is the interpretation of the obligation to hold identical and equivalent assets. Article 7, Section 2 of the Virtual Asset User Protection Act stipulates that businesses must separate their assets from users' assets and must actually hold assets of the same type and quantity as those entrusted. Interpreting these two obligations simultaneously, it can be understood that the intention is to manage customer assets separately while ensuring that there is no shortfall.

However, it is questionable whether this immediately leads to the conclusion that customers only hold claims against the company. It is necessary to distinguish what and how much should be returned and to whom the property being held belongs. The separation storage regulation alone does not automatically establish a recovery right, but it is also difficult to view the obligation to hold identical and equivalent assets as a basis for denying the recovery right.

The fact that multiple customers' assets were mixed together must also be examined to determine whether it provides sufficient reason to treat those assets as the company's liability property. Even if it is difficult to distinguish the individual SOL deposited by the plaintiff from those of other customers, there remains the possibility of distinguishing the total assets held for customers from the company's proprietary assets.

Thus, it is necessary to examine not only whether individual units can be identified but also whether the scope of the assets held for customers and each customer's rights can be verified through ledgers and transaction histories. The judgment that the specificity of individual assets has disappeared due to commingling does not equate to the judgment that rights over the totality of customer assets cannot be recognized.

Although digital assets are not securities, the legal principle of commingled securities serves as a comparative basis to explain this difference. The Supreme Court ruling cited in this judgment (Supreme Court 2008다17212, pronounced on November 27, 2008) indicates that customers hold both a claim to return securities of the same quantity and a shared interest in all commingled securities.

Article 312, Section 1 of the Capital Markets Act also presumes shared interests based on the type, category, and quantity of securities recorded in the account. Of course, since securities have a legal framework that supports such rights, this conclusion cannot be directly applied to SOL. However, it is clear that the mixing of assets and the obligation to return equivalent quantities can coexist with customers' property rights.

Further explanation is needed in the interpretation of the terms and conditions. The terms state that rights to the relevant digital assets belong to members and that the company acts as an agent for staking services. The court interpreted this as a simple provision regarding return claims, citing the transfer of management rights to the company and the exclusion of assets from members' withdrawal possibilities as grounds. However, management rights can also be transferred when holding or performing duties on behalf of others.

The fact that withdrawals were restricted for staking does not imply that the company was granted the right to use those assets for its own business. It is necessary to distinguish between cases where the company only performs duties defined by the customer and cases where it has the authority to use and dispose of assets for its own account. The court needed to provide a more detailed explanation of why it interpreted that only return claims remain for customers despite the terms containing language reserving customers' rights.

If it is difficult to predict what rights can be exercised when the business goes bankrupt, despite explaining that assets are stored separately for customers, confusion regarding custodial services is expected. While this ruling does not definitively establish the legal status of all custodial digital assets, it has revealed that the ability of customers to recover their assets may vary depending on the interpretation of contracts and storage methods. If this uncertainty continues, there will be a need for legislation to clarify the rights relationships among customers, businesses, and the creditors of businesses.

Article 75, Section 7 of the EU's Markets in Crypto-Assets (MiCA) not only requires that custodial assets be stored separately from the business's own assets but also stipulates that, according to applicable laws, they must be legally separated so that creditors cannot exercise rights over custodial assets even if the business goes bankrupt. This distinction in storage methods and legal effects in bankruptcy is worth referencing for domestic legislation.

From a legislative perspective, it is first necessary to distinguish between transactions where assets are simply entrusted for safekeeping and transactions where the business is allowed to use the assets for its own account. It is also necessary to establish the criteria for excluding jointly held customer assets from the business's bankruptcy estate and to determine how to reconcile customer-specific ledgers and actual custody balances to finalize the scope of returns. In cases where custodial assets are insufficient, it should also be defined how to allocate the remaining assets to customers and how the unrecovered portions will be treated in bankruptcy proceedings.

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