UKJT consults on digital assets and English insolvency law

October 26, 2023

The UK Jurisdiction Taskforce (UKJT) is a part of LawtechUK, an industry-led group tasked with supporting the digital transformation of the UK legal services sector and with positioning English law as a law of choice for new technologies. The UKJT brings together the judiciary, the Law Commission of England and Wales, regulators and technology and legal professionals within its membership. The remit of the UKJT is to provide legal certainty for new technologies under English law.

Digital transformation has become a top priority for many institutions operating in the financial markets. It is widely recognised that blockchain, DLT and associated technologies offer significant potential in this regard. Institutional investors have increasingly embraced digital assets in their portfolios. The UKJT says that the UK legal services sector, would benefit considerably if English law and forum were to be a leading choice of law/forum for such arrangements.

At the same time, the past 18 months have seen increased turbulence in the digital asset markets. Recent high-profile collapses of digital asset exchanges, platforms and funds have highlighted the importance of robust insolvency processes to ensure fair and predictable outcomes in respect of this form of investment.

The UKJT sees merit in delivering a legal statement to provide clarity to the market as to the application of English insolvency law to digital assets. It is therefore consulting to ensure that the issues addressed are those about which key stakeholders are most concerned.

The consultation asks the following questions:

  • Are digital assets “property” forming part of the estate of the insolvent company or individual for the purpose of the English insolvency legislation?
  • For international allocation of insolvency jurisdiction based upon location of centre of main interests, what rules apply to determine where digital assets are located and/or administered?
  • Is a claim to digital assets held by a company or bankrupt capable of being a claim to recover property? If so, what factors determine whether it is to be so characterised?
  • If a claim to digital assets help by a company or bankrupt is a monetary claim, is it a claim for a liquidated sum to be capable of founding a statutory demand/winding up petition? Is it a claim in a “foreign currency” such that it should be converted to the currency of the insolvency on day one?
  • Are office-holders subject, generally, to any obligations in relation to holding/realisation of volatile digital assets in an English insolvency?
  • Can you perceive any difficulties in the application of the English insolvency legislation relating to avoidance of prior transactions to pre-insolvency dealings with digital assets? If so, what are they?
  • If a claim to digital assets held by a custodian company can be a proprietary claims, what mechanisms are available to deal with mixing of the property of various clients and/or a shortfall in an insolvency of an exchange or custodian?
  • What interlocutory, investigatory of enforcement procedures are available to insolvency office-holders under English law, to get in digital assets or their monetary equivalent for the benefit of the insolvent estate?

The consultation ends on 4 December 2023.