Mar 2026
On 10 March 2026, the Court of Appeal for Bermuda (Kawaley P, Flaux and Hickinbottom JJA) handed down its judgment in Re Bittrex Global (Bermuda) Ltd (In Liquidation). The Court dismissed an appeal by Bittrex Global Inc (“BGI”), the sole shareholder of Bittrex Global (Bermuda) Limited (“Bittrex”), against a series of orders made by the Supreme Court in the liquidation of Bittrex, a Bermuda-licensed digital asset exchange. Conyers acted for the Bermuda Monetary Authority (“BMA”), the statutory regulator of Bermuda’s digital asset sector and the successful respondent in the appeal.
The judgment confirms, for the first time at appellate level in Bermuda, that customer digital assets held by a licensed digital asset business are bankruptcy-remote under the Digital Asset Business Act 2018 (“DABA”) and cannot be treated as the property of the company or distributed to shareholders in a liquidation.
The judgment will be of particular interest to insolvency practitioners for its endorsement of automatic admission of creditor claims without formal proof where liabilities are precisely recorded in the company’s books, and its confirmation that undisputed debts must be satisfied before any surplus distribution to shareholders, even if those creditors have not submitted proofs of debt.
Background
Bittrex was licensed under DABA to provide custodial wallet services and to operate as a digital asset exchange. Its customers opened “wallet” accounts in which they could notionally “deposit” various forms of digital assets, such as cryptocurrency, and trade the contents of those wallets on the Bittrex exchange.
Bittrex ceased trading in December 2023 and placed itself into a purportedly solvent compulsory liquidation in March 2024. At the date of winding up, Bittrex had almost a quarter of a million accountholder customers, many with small balances. The joint liquidators conducted a modified proof of debt process under which approximately 56% of known customer creditors submitted proofs of debt through a modified, online procedure devised by the joint liquidators (the “JLs”).
In early 2025, a disagreement arose between the JLs and the BMA regarding the proper treatment of the remaining, unclaimed digital assets (i.e. the contents of the wallet accounts for which no proof of debt had been lodged). The JLs applied to the Supreme Court for sanction to distribute some or all of the unclaimed assets as an “interim surplus” to BGI, the sole shareholder. The BMA opposed that course. Its position was that the wallet assets were “custodial” under DABA and therefore not available for distribution as surplus. The BMA applied to the Supreme Court for relief on that footing, including an order under Rule 64(1) of the Companies (Winding-Up) Rules 1982 (“Rule 64(1)”) that the non-proving customers be admitted as creditors of the company without proof.
Martin J heard the applications together and gave his ruling on 11 July 2025. In bare outline he held that:
- Section 175 of the Companies Act 1981, which deals with the powers of court-appointed liquidators, does not empower officeholders to effect an interim distribution of surplus. The power to distribute surplus assets of a company in compulsory liquidation is reserved to the Court under section 192 of the Companies Act.
- The Court would not sanction an interim distribution in any event. The assets credited to the wallet accounts were held by Bittrex in accordance with the requirements of DABA, in particular sections 17 and 18, and were therefore not available for distribution to the shareholder, or indeed to general creditors.
- The JLs were to admit the claims of all remaining former customers of Bittrex whose claims had not already been admitted to proof, where those customers had positive balances in the Standard Hosted Wallets, in the amounts reflected in the company’s records, without the need for further proof. This was the first reported instance of the Supreme Court exercising its power under Rule 64(1).
BGI sought leave to appeal against that ruling and also against two subsequent procedural orders of Martin J. The Court of Appeal held an expedited rolled-up hearing in January 2026.
Key Takeaways from the Court of Appeal Judgment
Sir Julian Flaux JA gave the leading judgment dismissing the appeal save on a single “academic” point. Kawaley P gave a short concurring judgment. Hickinbottom JA agreed with Flaux JA’s reasoning and the disposal proposed by the President.
The salient aspects of the Court’s decision are set out below.
1. Customer digital assets held in custody by a licensed undertaking are not the property of the undertaking and are bankruptcy-remote under DABA
The Court of Appeal confirmed that digital assets transferred by customers to Bittrex and attributed to standard wallets were held by the company for the benefit of the relevant customers, who retained a proprietary interest in those assets. The Court held that sections 17 and 18 of DABA, read together and in light of the statute’s express protective purpose, require a licensed undertaking to keep customer assets segregated from its own and to maintain sufficient reserves to meet its obligations to clients. Section 18(4), despite some infelicity in its drafting, was construed as having declaratory effect: client assets held by a licensed undertaking are not its property and are not subject to the claims of its creditors.
This holding is of broad significance for Bermuda’s digital asset sector. It confirms for the first time at appellate level that the client asset protection regime under DABA operates as a true bankruptcy-remote structure: customer assets held in custody by a licensed undertaking are not available to the undertaking’s creditors in the event of insolvency and must be returned to the customers to whom they are attributed. The decision may provide reassurance to customers of Bermuda-licensed digital asset businesses that their assets are protected by statute, regardless of the operational or financial condition of the platform on which they are held.
2. A licensed undertaking cannot contract out of the statutory protections afforded by DABA
The Court rejected the argument that clauses in Bittrex’s Terms and Conditions — which purported to transfer full legal ownership of deposited tokens to the company — had the effect of disapplying sections 17 and 18 of DABA. Flaux JA held that if the clauses had the meaning for which BGI contended, Bittrex would have purported to contract out of the statute, leaving customers with no protection in the event of insolvency — a result that would “drive a coach and horses” through DABA’s protective purpose.
The judgment makes clear that the Bermuda courts will not give effect to contractual terms in digital asset consumer contracts that are inconsistent with the mandatory requirements of DABA. The closing words of both clauses 4.2 and 6.2 of Bittrex’s Terms and Conditions — which provided that tokens were held “in accordance with the requirements of DABA” and upon which BGI placed great reliance — were held to constitute a binding contractual commitment to comply with sections 17 and 18, the only provisions of DABA that prescribe requirements as to the holding of customer assets.
3. The Court will not permit a surplus distribution where known debts are outstanding
The Court of Appeal held that, irrespective of whether customers had a proprietary interest, Martin J was correct to refuse any distribution to the shareholder while established creditor claims remained unsatisfied. In such circumstances, the proper course was for the undisputed creditors to be automatically admitted as such. If the automatically admitted creditors did not claim their dividends, then those undistributed assets fell to be paid into the Consolidated Fund under section 257 of the Companies Act 1981. As Kawaley P indicated in his short concurring judgment, it is not open to a company’s liquidators and shareholders to “opt out” of that statutory scheme, even if the recipient shareholder were to undertake to reimburse late-proving creditors for their share of assets distributed as an “interim surplus”.
The question of surplus assets seldom arises in compulsory liquidations, which are most often insolvent. Before this case, there was scarce Bermuda authority on the point. The Court has strongly endorsed the primacy of creditor interests over the residual claims of shareholders to surplus assets. As Jenkins J said in Re Armstrong Whitworth Securities Ltd [1947] Ch 673, a “cardinal principle” of any winding up is that “shareholders are not entitled to anything until all debts have been paid”. In Bittrex, the Court of Appeal decided that the “interim surplus” scheme proposed by the JLs, with the support of BGI, offended that principle and the first-instance judge was right to reject it.
4. The Court may direct automatic admission of creditor claims without formal proof under Rule 64(1) of the Winding Up Rules 1982
The Court of Appeal upheld the Supreme Court’s automatic admission order under Rule 64(1) of the Winding-Up Rules. Flaux JA held that the Rule gives the Court a broad discretion and that this Court could only overturn the judge’s exercise of that discretion if satisfied that no reasonable judge could have reached the decision or the decision was irrational — a heavy burden that BGI could not discharge. The Court endorsed the reasoning of Kawaley P (sitting as judge of the Grand Court of the Cayman Islands) in Re Herald Fund SPC [2018] (2) CILR 162 that there is no substantive difference between an “admitted” debt and a “proved” debt, and that debts may be established through whatever legally recognised process the liquidator, under the Court’s supervision, deems appropriate.
This holding has wider implications for large-scale insolvencies, particularly those involving numerous low-value claims. It confirms that where creditor liabilities are known, quantified, undisputed and recorded in the company’s own books and records, the Court can and should dispense with the requirement for individual formal proofs of debt.
The judgment of the Court of Appeal is available here.