Issue link: https://digital.shearman.com/i/1479657
Avoidance Powers Cryptoassets & Insolvency 19 The Insolvency Act provides liquidators and administrators with powers to challenge transactions or actions by or on behalf of a company prior to its insolvency. The value of assets transferred by or otherwise removed from a company's possession (or control) is often crucial in this regard. Take two examples: • A company enters a transaction at an undervalue for the purposes of s.238 IA86 if, among other things, it "enters into a transaction with a person for a consideration, the value of which, in money or money's worth, is significantly less than the value, in money or money's worth, of the consideration provided by the company." • A company gives a preference for the purposes of s.239 IA86 if, in relation to one of its creditors or surety or guarantor for its debts or liabilities, the company "does anything or suffers anything to be done which…has the effect of putting that person into a position which, in the event of the company going into insolvent liquidation, will be better than the position he would have been in if that thing had not been done." Where such transactions are shown, the court can make such order as it thinks fit for restoring the position of the company to the position if the transaction at an undervalue or preference had not been given. The price volatility of certain cryptoassets could make it difficult to show that a TUV or preference had occurred in the first place or to determine what should be required to unwind the transaction. For example, if the cryptoasset had risen and fallen in price significantly since the date of the relevant transaction, a question may arise as to whether the company should be entitled to the cash equivalent of the cryptoasset at its highest valuation since the date of the transaction, the value of the cryptoasset at the date of the court order, or at some other point in time. The English courts have a huge body of jurisprudence on which to rely and will be able to rule on such matters, but the novel characteristics of cryptoassets are likely to present some complex legal issues in the coming years.