What Happens to Crypto in Insolvency? Understanding the New Challenges
NAVIGATING DIGITAL ASSETS UNDER NEW 2026 REGULATIONS
Cryptocurrency has moved rapidly from fringe technology to a mainstream business asset — and UK insolvency law is now trying to keep pace. As more companies hold or trade digital assets, key questions are becoming increasingly urgent: Who actually owns crypto in an insolvency? How is it valued? What happens if the exchange collapses? And how do practitioners recover assets if private keys are missing?
These challenges now sit at the centre of modern insolvency practice, and with new legislation taking effect from 1 January 2026, this year is already redefining how digital assets are handled across both taxation and insolvency processes.
To deepen this discussion, we spoke with Andreas Georgiou, an expert in online currencies and trading who mentors businesses integrating digital assets.
(You can follow him on X at @lsptrading, where he shares insights with an audience of over 6,000 followers.)
THE LEGAL LANDSCAPE: CRYPTO AS “PROPERTY” — AND NEW HMRC RULES
Recent UK case law confirms that cryptocurrency is treated as “property,” meaning it forms part of the insolvent estate just like machinery, cash, or stock. This applies across Bitcoin, Ethereum, stablecoins, NFTs, and tokens.
But from 1 January 2026, directors and insolvency practitioners now face an additional layer of complexity: new HMRC reporting requirements for crypto assets.
Under the updated rules:
Individuals and companies must declare crypto holdings, gains, and disposals with far greater transparency.
Exchanges operating in the UK must provide HMRC with annual reports on user activity, including identity verification, balances, and transaction histories.
Crypto assets are now subject to enhanced disclosure obligations during insolvency, including mandatory reporting of historic and current wallet activity.
This shift means hidden crypto — long one of the biggest challenges in insolvency — is now much harder to conceal. It also places greater responsibility on directors to maintain accurate records long before financial distress occurs.
As Andreas explains:
“One of the biggest challenges for insolvency practitioners is that if a company holds Bitcoin or another currency in a wallet or cold storage, and you don’t have access to the private keys — that crypto is impossible to get to. Without those keys, you simply cannot include it as an asset in a liquidation.”
With the new HMRC rules, however, failure to disclose those assets can now lead to tax penalties and enforcement action within the insolvency process.
OWNERSHIP: A NEW KIND OF DISPUTE
Ownership disputes remain one of the most complex areas of crypto insolvency. Wallets may hold customer and company funds together. Some accounts may sit on overseas exchanges. Others may involve smart-contract obligations or pooled exchange wallets, making beneficial ownership unclear.
Upcoming post-Brexit digital-asset custody rules — expected later in 2026 — aim to clarify responsibilities for exchanges, brokers, and custodians.
Andreas stresses the importance of good governance:
“There’s a fiduciary responsibility on directors. If they’re receiving cryptocurrency as payment, they must follow the rules that keep that currency safe. That means ethical practices, strong password protocols, proper storage, and making sure that crypto can’t be accessed by the wrong people.”
With the new HMRC reporting framework, directors can no longer rely on inconsistent internal systems — accurate, transparent asset management is now a compliance requirement.
VALUATION: A MOVING TARGET
Crypto’s volatility creates major difficulties in insolvency. Prices can swing dramatically, sometimes within hours, making valuations out of date almost immediately. Timing of disposal is critical and must be illustrated with proper documentation and fair reasoning.
Courts are becoming more accustomed to handling digital-asset valuation issues, but volatility remains an unavoidable risk.
TECHNOLOGY AND TRACEABILITY: A GROWING ADVANTAGE
Despite the challenges, the transparency of blockchain networks is one of crypto’s strongest advantages.
Andreas highlights the role of modern tools:
“There is a positive side — companies like Chainalysis use AI to analyse the blockchain and different networks. They can trace wallet activity and locate transactions. That’s useful for practitioners trying to understand what a company has and where funds have gone.”
Companies integrating crypto into their operations are also benefitting from automated financial controls.
“Platforms like Fireblocks allow companies to store assets securely and use AI to create rules so only certain amounts can be sent. These systems make it easier for insolvency practitioners to trace what’s going in and out,”
Andreas adds.
The new HMRC rules now formalise some of this oversight — requiring companies and exchanges to maintain auditable trails of crypto movements.
A FABRICATED EXAMPLE: TECHVAULT LTD
To illustrate the practical complexity, imagine a fictional business: TechVault Ltd, a UK gaming platform accepting crypto payments and holding reserves in Ethereum.
When TechVault entered administration, the practitioner discovered several challenges: mixed customer and company funds in multiple wallets, missing private keys, and rapid valuation changes.
Because customer funds were involved, the practitioner also reported the case to the FCA under the new digital-asset obligations.
Under the 2026 HMRC rules, TechVault’s exchange accounts were automatically disclosed, providing wallet histories — something that, previously, would have required extensive investigation.
THE ISSUE OF HIDDEN CRYPTO
For years, undisclosed digital assets were one of the most difficult challenges in insolvency. Crypto could be moved, stored, or hidden far more easily than traditional funds.
Andreas issues a clear warning:
“It’s important to be honest with your practitioner about what you hold. Crypto can be very easy to hide — and until the government creates a universal tracking mechanism, it is difficult to trace everything completely.”
The new HMRC reporting rules represent a major step toward that mechanism. Concealing assets is no longer just unethical — it now carries tax consequences in addition to potential insolvency penalties.
WHAT DIRECTORS SHOULD BE DOING NOW
With the 2026 rules now live, directors must:
Maintain accurate records of all crypto holdings
Implement secure, shared access protocols
Use regulated exchanges and custodians
Keep regular valuations and transaction histories
Ensure crypto acceptance processes comply with new HMRC standards
Most importantly, directors should seek early professional advice at the first sign of financial distress.
WHAT CREDITORS NEED TO KNOW
Creditors should expect:
Faster tracing of crypto assets due to mandatory HMRC disclosures
Clearer evidence of ownership
Better audit trails from exchanges
More accurate asset realisation timelines
However, complications remain where wallets lack private-key access or assets are held overseas.
CONCLUSION: PREPARATION IS NOW ESSENTIAL
As digital assets continue to integrate into UK business, insolvency law and tax regulation are evolving rapidly. The new HMRC rules mark a significant shift toward transparency — increasing expectations on directors and making crypto-related insolvencies more structured, but still complex.
Voscap continues to support directors, creditors and advisers navigating these emerging challenges. If your business holds digital assets or you are concerned about how crypto may affect a potential insolvency, our team can provide practical, confidential guidance.
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