What Happens to the Coins When a Treasury Company Goes Bankrupt?

In a treasury company bankruptcy, the bitcoin does not belong to the shareholders but to the estate. A trustee, administrator or court distributes it in a fixed order: first lenders holding the coins as collateral, then the costs of the proceedings, then bonds and other creditors, then the preferred shares. Common shareholders get only what is left at the very end, which is usually nothing. There is one exception: if bitcoin rises sharply during the case, something may reach them after all.

How much leverage a treasury company carries and how a price crash hits its equity is explained in The risk of leveraged bitcoin companies. This article covers the step after that: what happens legally when it really comes to it, and who ends up with which coins.

When a treasury company is bankrupt

A company that owns more bitcoin than it owes can still end up insolvent. There are two triggers:

• Illiquidity: an instalment, an interest payment or a maturing bond cannot be paid. For a pure treasury company this is rare as long as it can sell bitcoin to pay the bill.
• Over-indebtedness: debts exceed assets. For a company whose assets are almost all bitcoin, the price decides.

In Germany these are the insolvency grounds of sections 17 and 19 of the Insolvency Code (InsO). Management must then file no later than three weeks after becoming illiquid and six weeks after becoming over-indebted (section 15a InsO). The US has no such duty. A company can file voluntarily for protection at any time, even before the money runs out, and creditors can in some cases file against it.

Realistically, a treasury company goes bust in one of two situations: bitcoin has fallen so far that debts and costs exceed the holdings, or a large part of the coins sits with a lender as collateral and a repayment falls due that the free coins cannot cover.

Who gets the coins first? The ranking

The central rule of insolvency law: whoever ranks higher is paid in full before the next in line gets a cent. Within one level, everyone shares in proportion to their claim.

Three points matter especially for treasury companies.

Convertibles become ordinary bonds in a crisis. The right to swap them into shares is worthless in a bankruptcy. The holder has a claim for face value plus interest accrued up to the filing and ranks equally with suppliers and other unsecured creditors.

Preferred stock is not debt. Bitcoin preferreds such as STRF, STRC or SATA pay dividends the way bonds pay interest, but legally they are equity. Their claim is a liquidation preference, usually face value plus unpaid dividends, and it only applies once all creditors are paid in full. What the levels look like at Strategy is shown in Strategy's capital structure explained.

Shareholder lawsuits move to the back. Anyone who wants to undo a share purchase or claim damages over false statements is not treated as a creditor in the US but is pushed back to the level of their shares (§ 510(b)). It is no way around the other creditors.

Bitcoin as collateral: the lender goes first

If a company has pledged bitcoin for a loan, those coins are initially out of reach of the other creditors. The lender is paid from them before everyone else, even before the costs of the case.

That holds only up to the value of the collateral. If the loan is larger than the pledged bitcoin is worth, the difference becomes an ordinary claim at level 3. If the collateral is worth more than the loan, the surplus flows back into the estate for everyone else.

Who sells the coins depends on who holds them. In Germany the creditor realises the collateral itself if it holds the bitcoin and the administrator does not (section 173 InsO); the court can set it a deadline. In the US, the filing first stops all creditor action (the automatic stay, § 362), including forced sales. Whether and when a lender may still realise its collateral depends on the contract and on the court.

A special case is the lender itself. If it is not the treasury company but the custodian or lender holding its coins that fails, the company becomes a creditor in that case. In 2022 that hit many with Celsius and BlockFi. How such cases ended is covered in Crypto exchange bankrupt: lessons from Mt. Gox to FTX.

Chapter 11, Chapter 7 and German insolvency

Most large treasury companies are based in the US. There are two routes there:

• Chapter 7 is liquidation. A trustee takes over, sells the assets and distributes the proceeds strictly by rank. Afterwards the company no longer exists.
• Chapter 11 is reorganisation. Management usually stays in charge (debtor in possession) and proposes a plan for paying creditors. Bondholders often receive the new shares of the company instead of cash. The creditor classes vote on the plan.

If a class rejects it, the court may confirm the plan only if it is "fair and equitable". That includes the absolute priority rule (§ 1129(b)): an unsecured class that is not paid in full does not have to accept anyone below it receiving anything. That is why old shareholders usually walk away empty-handed in Chapter 11.

In Germany, once the case opens, an insolvency administrator takes control of the assets (section 80 InsO); in self-administration, management stays in office under a supervisor (section 270 InsO). Both outcomes exist here too: liquidation and distribution, or an insolvency plan, the German counterpart of Chapter 11. Since 2012 such a plan can also reach into shareholders' rights: creditors' claims may be converted into shares, capital reduced and existing shareholders' subscription rights excluded (section 225a InsO).

In Austria the procedure with a plan is called a restructuring procedure (Sanierungsverfahren). In Swiss bankruptcy, secured claims are paid first from the collateral, and the remaining creditors in three classes (Art. 219 of the Debt Enforcement and Bankruptcy Act, SchKG). For the big treasury companies this hardly matters: they are based in the US, Japan, the UK, France or Sweden.

The price is frozen on the day the case starts

A peculiarity of bitcoin companies: their assets swing wildly, their debts do not. In the case, all claims are fixed as of one date, the day of filing (US, § 502(b)) or of opening (Germany). Claims in a foreign currency or a unit of account are converted into euros on that day (section 45 InsO). That also applies to debt denominated in bitcoin, such as Capital B's convertible bonds. Interest after that date is subordinated in Germany and in the US is usually disallowed altogether for unsecured claims.

The company's bitcoin, on the other hand, stays bitcoin as long as nobody sells it. If the price rises during the case, the estate grows but the claims do not. The gain flows down the ranking: first to creditors not yet fully covered, then to the preferreds and finally to the shareholders. If the price falls, the lower levels are hit first.

This is not a thought experiment. Bitcoin miner Core Scientific filed for Chapter 11 on 21 December 2022, with bitcoin at around $17’000. By the time its plan was confirmed in January 2024 the price had more than doubled. The judge called the plan a "tremendous recovery" for unsecured creditors and for shareholders too: existing shareholders received new shares and warrants making up about 60% of the new company. Without the tailwind of a rising price, such cases usually end without anything for shareholders.

Worked example: who gets what at which price

An invented example treasury company holds 10’000 BTC. Ahead of the shareholders stand:

• a $150 million loan secured by 4’000 BTC,
• a $300 million convertible bond,
• preferred stock with a $400 million liquidation preference,
• $20 million of costs for the case, administrator and lawyers.

The company goes bankrupt and all bitcoin is sold at the given price.

At $30’000 the collateral falls short: the lender gets $120 million from the 4’000 BTC and lines up its missing $30 million beside the convertible. At $40’000 the secured lender is paid in full and the convertible gets just over three quarters. Only at $60’000 does anything reach the preferreds. The $100’000 row is the "price rises during the case" scenario: if the case was opened at $40’000, the claims are the same, but the coins fetch more, and for the first time something is left for shareholders.

What shareholders end up with

Common shareholders face three possible outcomes:

1. Nothing. The most common case. In Chapter 11 the old shares are usually cancelled and creditors get the new ones. The stock is delisted and trades over the counter at best.
2. A remainder after distribution. If all creditors are paid in full in a German liquidation, the administrator hands the surplus to the shareholders as they would receive it in an ordinary liquidation (section 199 InsO). If preferred shares have priority on liquidation proceeds, they get their share first.
3. A stake in the reorganised company. As at Core Scientific, when the assets become worth much more than the claims during the case.

One point is often overlooked: as a shareholder you do not own a single one of the company's bitcoin. You have no right to have coins delivered to you, only a share in the remainder in dollars or euros. If you want bitcoin that nobody can take from you in a crisis, hold it yourself. What a treasury stock offers in return and what it costs is compared in Bitcoin treasury companies explained.

What applies to you in Germany, Austria and Switzerland

If you buy shares of Strategy, Strive or Metaplanet from Germany, Austria or Switzerland, the insolvency law of the company's home country applies in a crisis, not yours. Your bank holds the shares for you and passes on notices from the case. As a shareholder you do not file claims anyway, because shareholders are not creditors. The same goes for preferred shares.

A look at companies on this site shows what ranks ahead of shareholders (as of November 2026):

Source: the site's treasury and digital credit data, holdings dated 30 Sep to 9 Nov 2026. Current figures are in the treasury overview.

For your own check this means: more important than the number of bitcoin is how many of them are pledged, when debt falls due and how big the levels above your shares are. How much room there is between the bitcoin value and those levels is shown on the Digital Credit page for the large issuers.