Issue link: https://digital.shearman.com/i/1479657
Cryptoassets & Insolvency 22 Expenses and Preferences: Where a company has gone into an administration or winding-up process, the IP will ordinarily be able to pay its remuneration and any expenses incurred during their tenure (subject to certain restrictions) out of the property under its control and in priority to the rights of the holder of a floating charge. Given the level of specialist expertise that may be required by IPs (and their delegates) in managing cryptoassets insolvencies, costs could be significant (as discussed later in this paper), which could impact recoveries for floating charge holders and unsecured creditors. Furthermore, in certain circumstances, an IP is required to set aside a part of the company's property subject to a floating charge (known as the "prescribed part") and make it available to unsecured creditors. However, these insolvency law provisions will not apply to a security interest over a cryptoasset under a financial collateral arrangement and consequently, a floating charge holder should be able to ring-fence their collateral from such claims. Avoidance of Contracts: An IP has the power to disclaim property it considers unprofitable or too onerous to retain which, given their complex nature and volatile valuation, could feasibly apply to cryptoassets. However, this will not apply to a financial collateral arrangement where the collateral- provider or collateral-taker under the arrangement is subject to winding-up proceedings. In addition, a floating charge created for insufficient value in a prescribed time before a company goes into administration or liquidation will be deemed invalid against an administrator or a liquidator. However, no such qualifications would apply to a charge created or otherwise arising under a financial collateral arrangement. Security, Netting and Enforcement (cont.)