South Korea Sets Rules to Seize Crypto for Unpaid Debts

South Korea’s Supreme Court promulgated Rule 3280 on Oct. 12, setting procedures for attaching, transferring and selling digital assets in debt-recovery cases. The rules take effect Nov. 1 and cover cryptocurrency held by exchanges, other custodians and debtors themselves.

Creditors seeking repayment from exchange-held cryptocurrency can ask a court to attach the debtor’s right to receive the assets. Once the order is served, the exchange or custodian must block transfers to the debtor. The debtor also cannot transfer the claim or take possession of the cryptocurrency.

Creditors can ask the court to obtain information about the holdings. Custodians must respond within one week of receiving the order. Their response must state whether they recognize the debtor’s claim, identify the types and amounts of cryptocurrency held, and disclose any claims or priority rights held by other creditors.

For cryptocurrency held directly by a debtor, a court can prohibit transfers and order the assets delivered to an enforcement officer. The officer may receive the cryptocurrency before the debtor is formally served with the attachment order. If that happens, the attachment takes effect when the officer receives the assets.

Enforcement can remain difficult when cryptocurrency is stored in a private wallet and the debtor controls the private keys needed to authorize a transfer. The rules do not remove that technical barrier to accessing self-custodied assets.

After cryptocurrency is attached, creditors can seek another court order to recover its value. A judge may authorize a transfer to creditors at a court-determined value or direct an enforcement officer to arrange a sale through a virtual asset service provider.

For cryptocurrency held on an exchange, the rules permit sales through the existing custodian, transfers to an account controlled by an enforcement officer or conversion into assets that are easier to sell. Transactions must use the market price on the sale date or another value approved by the court.

Debtors can appeal orders authorizing transfers or sales. Those orders take effect only after becoming final. The rules also establish procedures for returning assets if enforcement proceedings are withdrawn or canceled.

The Supreme Court described the rules as a way to standardize debt-recovery cases involving cryptocurrency. The framework applies to cases already before the courts, while existing attachment and preservation orders remain valid. Exchanges and other custodians must follow the new disclosure, transfer and sale procedures from Nov. 1.