Cryptoassets and insolvency: a developing body of English law

An increasing body of English case law has recognised cryptocurrencies as a form of property giving rise to the possibility of insolvency clawback claims involving cryptoassets. 

Recent developments

Beginning with AA v Persons Unknown in 2019, the English courts have shown a willingness to adapt English law to recognise cryptocurrencies as a new class of asset. The UK Jurisdiction Taskforce Legal Statement on Cryptoassets and Smart Contracts in 2019 argued for flexibility in English law and the recognition of cryptoassets as a form of property. And there has followed a series of decisions, generally involving injunctions in fraud cases, where the English courts have done this.

The most significant international cryptoasset and insolvency related judgment involved the collapse of the New Zealand-based crypto exchange, Cryptopia. The New Zealand High Court held that stolen cryptocurrencies were capable of being 'property' under NZ law and that, on the facts, the exchange held cryptocurrencies on trust for its account holders. The English High Court has also recently held in Wang v Darby that cryptocurrencies can be the subject of a trust.

Most recently in England, the High Court in Ion Science v Persons Unknown granted the first third-party debt order over cryptoassets which had ended up in accounts held by cryptocurrency exchanges, allowing the claimants to recover the misappropriated sums directly from the exchanges.

What's next 

With the increase in insolvencies involving a crypto exchange or wallet (such as the English insolvency of Cubits) and the recognition of cryptoassets as property, it seems likely that we will soon see insolvency officeholder claims involving cryptoassets (eg as the subject of claims for transactions at an undervalue, or a transaction designed to defraud creditors).