The UK does not currently regulate cryptocurrencies and they are not recognised as legal tender or currency. Due to the wide drafting of the Insolvency Act, cryptocurrencies are included as an asset of the estate which can lead to several issues for insolvency practitioners (“IPs”).
Identifying cryptocurrencies is difficult and the starting point for IPs would be to use the information received from the directors of the company and collate further information from the company’s books, records, accounts and stock/assets.
If it has been established that a cryptocurrency exists, IPs would then need to take control of the cryptocurrency. Cryptocurrency is stored in electronic “wallets” which are accessible through publicly available software which requires a passkey. IPs must act quickly to take control of any cryptocurrencies.
To be able to realise cryptocurrency, IPs will usually have to engage forensic specialists. The value of cryptocurrency is volatile and the timing of the sale is key in being able to realise the maximum value of the cryptoasset. However, IPs will be exposed to potential criticism of sale at an undervalue and this may prolong the insolvency.
Only 5% of IPs have a comprehensive understanding of cryptocurrencies and how to deal with them. This is currently not an issue as there are only a handful of insolvencies where the individual/companies invest in cryptocurrency. However, due to the rise in prevalence of cryptocurrency, it is inevitable that there will be a rise in prevalence of cryptocurrency in insolvencies.
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