Bankruptcy Cases and Cryptocurrency
How to Recover Cryptocurrencies in Bankruptcy. Cryptocurrencies have become an increasingly popular investment and payment method, and their emergence has also led to a surge in their use in insolvency proceedings. Liquidators and bankruptcy trustees have been tasked with the recovery and distribution of cryptocurrency assets to creditors. However, due to their digital nature and lack of legal precedent, the recovery process for cryptocurrencies in insolvency proceedings can be a complex and uncertain process.
In Australia, the legal status of cryptocurrencies is still being defined, and as such, there is a lack of legal guidance available to liquidators and bankruptcy trustees dealing with these assets. Nonetheless, the Australian courts have provided some guidance on the recovery of cryptocurrency assets in insolvency proceedings. In the case of Power Ledger (Australia) Pty Ltd (in liquidation) [2020] WASC 363, the court granted an order for the liquidators to take control of the cryptocurrency assets held by the company. This was done by way of a “trading halt” order, which required the relevant cryptocurrency exchanges to freeze the assets held by the company.
The Australian Financial Security Authority (AFSA) has also provided some guidance for bankruptcy trustees dealing with cryptocurrency assets. According to their website, bankruptcy trustees must identify and value any cryptocurrency assets held by the bankrupt estate and ensure they are included in the asset pool for distribution to creditors.
What issues should I expect?
Despite these rulings and guidance, there are still uncertainties surrounding the legal status of cryptocurrencies in insolvency proceedings. The lack of legal precedent means that liquidators and bankruptcy trustees must exercise caution and seek appropriate legal advice when dealing with cryptocurrency assets.
One of the challenges facing liquidators and bankruptcy trustees when dealing with cryptocurrency assets is identifying the assets and their value. Cryptocurrency transactions are recorded on a public ledger known as the blockchain, but these records do not contain identifying information for the individuals involved in the transactions. Furthermore, the value of cryptocurrencies can be highly volatile, making it difficult to determine their worth at any given time.
Another challenge facing liquidators and bankruptcy trustees is the need to secure the assets while their value is being assessed. Cryptocurrencies are stored in digital wallets, which can be accessed with a private key. If the private key is lost or stolen, the assets stored in the wallet are lost forever. Therefore, liquidators and bankruptcy trustees must ensure that they have access to the private keys before the wallets are transferred to them.
What is the legal status of cryptocurrencies in Australia?
The legal status of cryptocurrencies in insolvency proceedings is a developing area of law, and there is still much uncertainty surrounding their treatment. One of the key issues is whether cryptocurrencies should be classified as property. In the case of AA v Persons Unknown [2019] EWHC 3556 (Comm), the English High Court held that cryptocurrencies were a form of property, and therefore capable of being the subject of a proprietary injunction. Similarly, in the case of G J Coles & Coy Pty Ltd [2021] FCA 430, the Australian Federal Court held that cryptocurrency assets were property for the purposes of the Corporations Act 2001 (Cth). However, there are still differing opinions on whether cryptocurrencies should be classified as property or not.
The classification of cryptocurrencies as property has significant implications for their treatment in insolvency proceedings. If cryptocurrencies are classified as property, they will be subject to the same rules that govern the treatment of other assets in insolvency proceedings. This means that they will be included in the asset pool for distribution to creditors.
However, if cryptocurrencies are not classified as property, they may be treated differently in insolvency proceedings. Liquidators and bankruptcy trustees may not have the power to recover or distribute them to creditors, and the value of the cryptocurrencies
may not be included in the asset pool for distribution to creditors. This creates a significant challenge for liquidators and bankruptcy trustees, as cryptocurrencies can often represent a substantial portion of the assets of an insolvent estate.
Furthermore, the lack of legal clarity surrounding the treatment of cryptocurrencies in insolvency proceedings can lead to lengthy and costly legal battles. The case of Mt Gox, which was one of the largest Bitcoin exchanges in the world, is a prime example of this. Mt Gox filed for bankruptcy in 2014, and over 850,000 Bitcoins were lost or stolen. The bankruptcy trustee has been tasked with recovering the lost Bitcoins, but the legal challenges surrounding the recovery process have been numerous and complex.
What other issues should I expect?
Another issue facing liquidators and bankruptcy trustees when dealing with cryptocurrency assets is the potential for fraud and misappropriation. Cryptocurrency transactions are irreversible, and once a transaction has been made, it cannot be reversed or undone. This makes cryptocurrencies a prime target for fraudsters, who can use them to facilitate money laundering and other illegal activities. Liquidators and bankruptcy trustees must therefore exercise caution when dealing with cryptocurrency assets and ensure that appropriate security measures are in place to prevent fraud and misappropriation.
The legal status of cryptocurrencies in insolvency proceedings is a complex and uncertain area of law. While there have been some rulings and guidance provided by the courts and regulatory bodies, there is still much uncertainty surrounding their treatment. Liquidators and bankruptcy trustees must exercise caution when dealing with cryptocurrency assets and seek appropriate legal advice to ensure that they are complying with their legal obligations. The classification of cryptocurrencies as property has significant implications for their treatment in insolvency proceedings, and it remains to be seen how this area of law will develop in the future.
Should I use a Lawyer to assist my case?
Using a lawyer to recover cryptocurrency assets in bankruptcy cases can offer a number of benefits to both the liquidator or bankruptcy trustee and the creditors of the insolvent estate. Here are some of the key benefits:
Legal expertise: A lawyer who specialises in cryptocurrency law and insolvency proceedings can provide invaluable legal expertise to the liquidator or bankruptcy trustee. They can help to navigate the complex legal landscape surrounding the treatment of cryptocurrencies in insolvency proceedings and provide guidance on the most effective strategies for recovering cryptocurrency assets.
Access to industry knowledge and resources: A lawyer who specialises in cryptocurrency law will have a deep understanding of the cryptocurrency industry and its associated technologies. They can provide insights into the latest trends and developments in the industry, as well as access to industry-specific resources and networks.
Increased likelihood of successful recovery: Cryptocurrency transactions are often anonymous and difficult to trace, which can make the recovery process challenging. A lawyer with experience in recovering cryptocurrency assets will have a range of tools and techniques at their disposal to help identify and recover the assets. They can also provide guidance on the most effective legal strategies for recovering the assets, such as obtaining freezing orders or seeking assistance from international law enforcement agencies.
Protection against legal challenges: Recovering cryptocurrency assets in insolvency proceedings can be a complex and uncertain process, and there is always the risk of legal challenges from other parties. A lawyer can help to protect the liquidator or bankruptcy trustee against legal challenges by ensuring that all legal procedures are followed correctly and that the recovery process is conducted in accordance with the law.
How can I maximise the assets recovered?
Cryptocurrency assets can often represent a significant proportion of the assets of an insolvent estate. Using a lawyer to recover these assets can help to maximise the crypto asset recovery for the benefit of the creditors.
In summary, using a lawyer to recover cryptocurrency assets in bankruptcy cases can provide a range of benefits to the liquidator or bankruptcy trustee and the creditors of the insolvent estate. Legal expertise, access to industry knowledge and resources, increased likelihood of successful recovery, protection against legal challenges, and maximising crypto asset recovery are all key benefits of using a lawyer in these cases.
How Private Investigators Assist in Bankruptcy Cases
Private investigators who specialise in cryptocurrency tracing can play a critical role in assisting liquidators and bankruptcy trustees to recover cryptocurrency assets in insolvency proceedings. Here are some of the ways in which they can assist the process:
- Tracing cryptocurrency transactions: Private investigators can use specialised tools and techniques to trace cryptocurrency transactions and identify the wallet addresses and individuals involved in these transactions. This can help to identify the source and destination of the cryptocurrency assets and provide valuable leads for the recovery process.
- Identifying fraudulent transactions: Cryptocurrency transactions can be difficult to track and often involve a high degree of anonymity. Private investigators can use their expertise in cryptocurrency tracing to identify fraudulent transactions and help to prevent misappropriation of the assets.
- Uncovering hidden assets: Private investigators can use a range of techniques to uncover hidden cryptocurrency assets that may not have been disclosed by the debtor or may have been moved to offshore accounts or wallets. This can help to maximise the crypto asset recovery for the benefit of the creditors.
- Providing expert evidence: Private investigators can provide expert evidence in court to support the liquidator or bankruptcy trustee in their recovery efforts. This can include detailed reports on cryptocurrency transactions, analysis of blockchain data, and expert testimony on the nature and value of cryptocurrency assets.
- Liaising with law enforcement agencies: Private investigators who specialise in cryptocurrency tracing often have strong relationships with law enforcement agencies and other industry experts. They can use these networks to coordinate efforts with other parties involved in the recovery process and to seek assistance from international law enforcement agencies where necessary.
Private Investigators who specialise in cryptocurrency often have existing close relationships with lawyers who also specialise in recovering cryptocurrencies in bankruptcy cases. In this situation, the Private Investigator will coordinate not only the tracing of the crypto assets, but also work with their trusted lawyers to evaluate the case, file to the court, and attempt recovery. This can hold significant advantages whereas the professional relationship between the lawyer and private investigator is already established providing for increased efficiencies during time-sensitive legal pursuits.
Tracing cryptocurrencies via a Private Investigator can provide invaluable support to liquidators and bankruptcy trustees in their efforts to recover cryptocurrency assets in insolvency proceedings. Their expertise in tracing cryptocurrency transactions, identifying fraudulent transactions, uncovering hidden assets, providing expert evidence, and liaising with law enforcement agencies can all assist with maximising crypto asset recovery for the benefit of the creditors.
Private Investigators who specialise in cryptocurrency tracing can play a crucial role in assisting liquidators and bankruptcy trustees to recover cryptocurrency assets in insolvency proceedings. Their expertise in tracing cryptocurrency transactions, uncovering hidden assets, providing expert evidence, and liaising with law enforcement agencies can help to maximise crypto asset recovery for the benefit of the creditors. Given the complexity and anonymity of cryptocurrency transactions, using private investigators who have specialised knowledge in this field is becoming increasingly necessary in cryptocurrency-related bankruptcy cases. Therefore, it is important for liquidators and bankruptcy trustees to consider using the services of these professionals to ensure that the crypto asset recovery process is conducted as efficiently and effectively as possible.
