By Nydia Remolina (Singapore Management University, Yong Pung How School of Law), Aurelio Gurrea-Martínez (Singapore Management University, Yong Pung How School of Law), and Daniel Liu (WongPartnership LLP)
The collapse of cryptoexchanges and the increasing use of cryptocurrencies in many corporate transactions have led to numerous discussions about the treatment of cryptocurrencies in insolvency. While much of the literature on insolvency and cryptoassets has primarily focused on the analysis of whether cryptocurrencies constitute property of the estate, our article, entitled “The Treatment of Digital Assets in Insolvency”, seeks to provide a comprehensive analysis of the treatment of digital assets in insolvency.
The article starts by offering a general overview of the different types of cryptocurrencies available in the market and how the use of digital assets has evolved from facilitating payments to serving as a potential investment or for fundraising purposes through Initial Coin Offerings. Before embarking on the analysis of digital assets in insolvency, our article discusses how cryptoassets are classified from different angles, including law (particularly through the lens of property law and securities regulation), finance, and accounting.
When it comes to the treatment and implications of digital assets in insolvency, the article starts by discussing whether crypto-represented debt should count for the purpose of assessing whether debtors and creditors can initiate insolvency proceedings. It also examines the role and rights of the holders of cryptocurrencies in insolvency proceedings, and how the response to this question may affect key aspects of the procedure, including the fate of the insolvent firm. Given the volatility of cryptoassets, one of the most critical questions that arises in an insolvency proceeding is how cryptoassets should be valued, and how that valuation should be conducted depending on whether the cryptoassets constitute an asset or a liability for the debtor.
The article concludes by examining other controversial questions that often arise in insolvency proceedings of companies engaged in crypto activities, such as the custody, recovery and realization of digital assets. It also discusses how cryptocurrencies can be used to engineer creative restructuring proposals. To that end, the article highlights some innovative solutions adopted in reorganization procedures in various jurisdictions such as the United States and Singapore.
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