UK: Cryptocurrencies: Practical Considerations In Insolvencies

Last Updated: 31 July 2019
Article by Charles Draper

In a recent report by INSOL International, only 5% of insolvency practitioners ("IPs") said that they had a "comprehensive or practical/working or understanding" of crypto-currency.

So with over 4,000 types of cryptocurrency now available and as payment technology continues to develop, we look at some issues facing IPs, including

  • How to identify cryptocurrency
  • How to categorise it
  • How to take control of it and sell it; and
  • What value does it have

What are cryptocurrencies?

The issue with the umbrella term "cryptocurrencies" is that it includes a wide range of features, many of which are technologically and conceptually complex. Helpfully, the Merriam-Webster dictionary defines the word as, "any form of currency that only exists digitally, that usually has no central issuing or regulating authority but instead uses a decentralized system to record transactions and manage the issuance of new units, and that relies on cryptography to prevent counterfeiting and fraudulent transactions".

Simply, cryptocurrencies are an electronic cash.

Cryptocurrencies are stored and transferred between users digitally, typically using a new technology known as Blockchain.

What is a block chain?

Blockchain is decentralised – there is no central authority recording the movement of cryptocurrency between users. Instead, each user's account independently verifies and records each transaction that occurs across a network, keeping a record of the amount of currency that existed in each account before the transaction, the date and time of the transaction, the amount of cryptocurrency transferred and the amount in each account after the transaction.

Each record is known as a "block" and each account in the network adds this block to the chain of records of previous transactions, hence "blockchain".

Advantages and disadvantages of cryptocurrencies

Information recorded in a blockchain is encrypted, protecting the identity of each user and the details of the transaction. This allows the database to be exceptionally accurate and secure, whilst keeping anonymity and transparency across the network.

Cryptocurrencies are currently unregulated in the UK.

Because they are not asset-backed or linked to the price of government-issued currencies such as the pound – their value is determined exclusively by consumer demand.

This leads to volatility in price as demand rises and sinks (or soars and plummets as demonstrated by Bitcoin), unlike traditional currencies. This is more reminiscent of stock markets; which bring us on to the initial issue with cryptocurrencies – what class of asset are they?

Categorising cryptocurrencies

Cryptocurrencies are a new development with many features that don't sit comfortably with traditional definitions:

Are they a currency as their name suggests?

Cryptocurrencies do share some similarities with cash – they can be exchanged for goods and services with a (albeit non-universal and exclusive) community.

However, they are not recognised as legal tender by any country and unless they are, and are accordingly regulated as such, they are not legally recognised as a currency.

A financial instrument?

Again, cryptocurrencies bear a resemblance to securities – they can be traded on exchanges and their value is based exclusively on demand.However, they are not recognised by any government as a "financial instrument" (across the EU, as per the Markets in Financial Instruments Directive) and until they are regulated by the FCA or another applicable regulatory authority, they cannot be legally accepted as such.

Are they a commodity?

Perhaps the most practicable treatment of cryptocurrencies is that they are a commodity, similar to gold.

They can be bought and sold with legal tender, traded with those limited dealers who accept them and their inherent value lies in their increase in cost.

Although it is currently uncertain how future legislation or judicial treatment will classify them, the Bank of England has commented in their Financial Policy Committee Statement in March 2018:

"Their values are currently too volatile to be widely used as a currency or a store of value and, with transaction costs high and settlement times slow, they are an inefficient media of exchange. Their use in payments is minimal in the United Kingdom. They should be considered as assets rather than currencies. However, as assets, they establish no claim on any future income streams or collateral. They have no intrinsic value beyond their currently limited potential to be adopted as money in the future, and hence could prove worthless."

Dealing with cryptocurrencies in insolvency

So what issue might an IP encounter when dealing with cryptocurrencies in an insolvent estate?

How do you identify cryptocurrencies as assets of the company?

The starting point is information received from the directors of the company and so, to an extent, a practitioner's knowledge will be reliant on their existence being disclosed to them.

Further information may be obtained from the Company's books and records, with accounts and stock/asset lists possibly indicating the presence of cryptocurrencies.

Other records of the company might also help to identify ownership of cryptocurrencies, with the IP being advised to investigate bank statements to identify transfers from company accounts to sites that buy/sell cryptoassets.

How does an IP take control of cryptocurrency?

Cryptocurrencies are stored in electronic "wallets" (similar to online banking) which are accessed through publicly-available software, and require a passkey to access.

There is no public register of ownership of cryptocurrencies and, thanks to the cryptography which protects the integrity of the cryptocurrency and the identity of the users, it will be impossible to identify ownership without external assistance.

Anyone with access to the widely-available software and the passkey will be able to transfer cryptocurrencies to other accounts, or to sell them for cash, with no record of the transfer being available.

This will rightfully raise concerns to any IP who has experienced uncooperative directors and acting quickly to identify and take control of any cryptocurrencies will be important in that scenario.

How can cryptocurrencies be realised?

Realising cryptocurrencies will require a working knowledge of the software for that specific cryptocurrency and access to the exchange on which they are traded.

Whilst most software should be user-friendly to people familiar with computers and technology, IPs may have to engage specialist agents in order to realise any value.

With an uncooperative director, the nature, location and value of the cryptocurrency may not be easily ascertained and the IP may have to incur the expense of engaging a forensic specialist without certainty that the realisation from the cryptocurrency will return value to creditors.

What value can cryptocurrency achieve?

Cryptocurrencies are traded on exchanges similar to the London Stock Exchange or NASDAQ, and the value of cryptocurrencies should be easily identifiable from the exchanges, which show a price per unit of cryptocurrency.

However the value of cryptocurrencies is incredibly volatile and the price achievable is highly dependent on the timing of the transaction. For example, the value of Bitcoin dropped from $13,880 on Wednesday 26th June to $11,200 just 15 hours later..

The timing of the sale is therefore critical to the realisation of maximum value of cryptoassets and this raises the issue that IPs will potentially be exposed to criticism for selling at an undervalue.

Taking advice from a specialist on the best time to sell will help to reduce that risk, however this may cause problems with IPs prolonging insolvencies waiting for the market to rise.

Antecedent transactions

In the event that an IP discovers that a challengeable transaction involving cryptoassets has occurred prior to insolvency, how can a transaction be challenged to recover the cryptocurrency, or the value of the cryptocurrency, into the insolvent estate?

The antecedent transaction provisions in the Insolvency Act appear to be be drafted widely enough to cover cryptocurrencies as an asset of the estate, however there are an array of problems that occur generally in litigation that apply specifically to cryptocurrencies.

For example, how will the IP obtain any evidence? Although all the transfer information is stored in the blockchain, this is encrypted and will require specialist assistance to uncover the information, if this is even possible.

Depending on the claim brought, the IP might need to prove there was cryptocurrency in the estate previously; that the cryptocurrency was transferred; when the cryptocurrency was transferred and who the cryptocurrency was transferred to.

These will all be in addition to the usual hurdles to an Insolvency Act claim.

An IP will likely need to engage a forensic specialist to uncover this evidence, however funding these investigations might prove difficult, particularly when there are no funds in the estate and no guarantee that an action will result in a recovery.


Currently, these issues will only affect the few company/individual insolvencies that invest in cryptocurrencies.

In the short term, unless an IP is appointed over an estate where trading in cryptocurrencies is the principle business, an awareness of cryptocurrencies and a basic working knowledge of them should be sufficient, given the relatively narrow spread of their use. However, this is likely to change.

With the rise in prevalence of cryptocurrency, we expect cryptocurrency to become more prevalent in insolvencies too.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions