South Korea proposes crypto seizure rules for civil debt enforcement

South Korea’s Supreme Court has proposed new civil enforcement rules for digital assets that set out how cryptocurrencies can be seized, transferred and converted into cash during debt collection proceedings, with the measures scheduled to take effect on Oct. 1 after public consultation.

According to local media, the Supreme Court on July 2 published draft amendments to the Rules on Civil Execution to introduce formal procedures for enforcing claims against digital assets. Public comments will be accepted until Aug. 11 before the rules are finalized.

Draft rules define seizure and liquidation process

The proposal comes as cryptocurrency ownership and trading continue to increase in South Korea, bringing a growing number of cases in which digital assets become subject to civil enforcement. The amendments add digital assets to an enforcement system that has traditionally focused on property, bank accounts and other claims.

Under the draft, compulsory execution against a right to demand the transfer of digital assets would begin once a court issues a seizure order. Digital asset exchanges and other third parties holding the assets would be prohibited from transferring them to the debtor, while debtors themselves would also be barred from disposing of their transfer rights or receiving the assets.

At the same time, creditors would be allowed to ask the court to require exchanges or other third parties to disclose whether the transfer claim exists, the type and quantity of digital assets held, and whether other creditors or priority claims are already attached to those assets.

The proposal also explains how seized transfer claims could be converted into cash through transfer orders or court-approved sales. Under the sale process, enforcement officers could instruct a virtual asset service provider to sell the assets, transfer them to an account opened for enforcement purposes before selling them, or exchange illiquid digital assets for more easily tradable ones before liquidation. The rules allow such exchanges when a token has low market value or limited trading liquidity.

Direct execution against digital assets

Separate procedures have also been proposed for compulsory execution against digital assets themselves rather than transfer claims. Once a court issues a seizure order, debtors would be prohibited from disposing of the assets, which would instead be transferred to an enforcement officer. The seizure would take legal effect once the transfer is completed.

For liquidation, the draft provides for transfer orders or sale orders. After a transfer order becomes final, digital assets may be transferred directly to the creditor’s designated address, while sales can also be carried out through virtual asset service providers.

In addition, the proposal includes procedures covering the return of assets when an enforcement request is withdrawn, the application of existing creditor enforcement rules, the enforcement of security interests over transfer claims, and provisional preservation measures.

The Supreme Court’s National Court Administration said it plans to complete the consultation process by Aug. 11 before implementing the revised rules on Oct. 1.

The proposal follows several digital asset policy changes introduced in South Korea in recent weeks. Last month, the Financial Services Commission expanded cryptocurrency disclosure requirements for applicants seeking debt relief under the New Start Fund by requiring virtual asset holdings to be included in asset reviews. 

The commission has also proposed allowing digital asset laws to be covered under the country’s financial regulatory sandbox as authorities continue updating the legal framework governing cryptocurrencies.