Issue link: https://digital.shearman.com/i/1479657
Cryptoassets & Insolvency 21 Prevention of Enforcement: When a company is subject to administration proceedings, a secured creditor cannot enforce against their security without the permission of the court or consent of the administrator. Similarly, where a company is subject to a Part A1 moratorium, a secured creditor cannot take steps to enforce security without the permission of the court. However, if a cryptoasset transaction constitutes a financial collateral arrangement, the collateral holder will be able to enforce its security notwithstanding the moratoria. Void Dispositions: In a winding up by the court, any disposition of the company's property after the commencement of the winding up (the time at which the winding-up petition is served) will be void without sanction of the court (s.127 IA 86). However, this will not apply to a disposition of property or a security interest arising under a financial collateral arrangement (including a close-out netting provision, subject to certain conditions). Registration: Security given by an English company or LLP which is not registered in 21 days will generally be void as against an administrator, liquidator or other creditors. However, registering security would de-anonymize the transacting parties and consequently undermine what is considered to be one of the key attractions in using cryptoassets. If the FCA Regs apply, there is no requirement to register a charge, nor will unregistered security be viewed as void against such persons. Foreclosure: English law will generally not permit a creditor to "foreclose" on their security without a court order, i.e., to claim ownership of a secured asset in satisfaction of their debt without having to sell the secured asset. However, if security falls within the ambit of the FCA Regs, the collateral-taker may appropriate the collateral (subject to the terms of the security financial collateral arrangement) without any order of foreclosure from the courts. Contractual terms that allow for effective foreclosure against cryptoasset collateral will be at risk of challenge if the FCA Regs exemption does not apply. Close-out Netting Provisions: A close-out netting provision (such as a contractual setoff or netting provision) that relates to a financial collateral arrangement or an arrangement of which a financial collateral arrangement forms part will take effect even though the collateral-provider or the collateral- taker is subject to winding-up proceedings or reorganization measures. Security, Netting and Enforcement (cont.)